Alliedsignal, Honeywell In Big Aerospace Merger -- Firm Plan $14. 82 Billion Deal

NEW YORK - AlliedSignal plans to buy Honeywell for $14.82 billion in stock, strengthening its aerospace business with the addition of Honeywell's control systems, the companies announced today.

The new company would take the Honeywell name and the AlliedSignal headquarters in Morristown, N.J. Honeywell's headquarters in Minneapolis would be closed and about 4,500 jobs, or 3.6 percent of their combined work force, would be eliminated.

A spokesman for AlliedSignal said the company currently has no plans that would affect the company's 1,142 employees in Redmond. That division makes flight-data and cockpit-voice recorders, ground-proximity warning systems and collision-avoidance systems.

Both companies' stock surged on Wall Street today as investors were quick to see the synergies and cost savings of the deal. At the close, Honeywell's stock was up $7, or 6.7 percent, to $112; AlliedSignal gained $4.438, or 7.6 percent, to $62.813. The rise in AlliedSignal's stock added about $1 billion to the value of the deal.

AlliedSignal makes equipment ranging from aircraft engines to wheels and brakes. Honeywell makes control systems for aircraft, homes and commercial buildings.

The combined company would have complementary aerospace operations, and Honeywell's other businesses would help it to overcome aerospace slumps, analysts said.

"It makes them an aerospace powerhouse," said Todd Ernst, a Prudential Securities analyst. The new company "is going to have

more leverage in the commercial-aerospace market," he said.

Lawrence Bossidy, 64, chairman and chief executive officer of AlliedSignal, would serve as chairman for the combined company until his retirement April 1. Michael Bonsignore, 58, chairman and chief executive of Honeywell, would be the new company's chief executive and assume the additional title of chairman when Bossidy departs.

Shareholders have been watching AlliedSignal closely since December, when the company was thwarted in a hostile bid to acquire AMP, a Harrisburg, Pa.-based maker of electronic connectors that was instead acquired by Tyco International.

The two companies have had on-and-off merger discussions since 1989, when Honeywell was a much weaker company. Bonsignore's turnaround of Honeywell made the company a stronger potential partner.

"As I looked at Honeywell and saw what Mike had done over the last six years in improving their outlook, I got more interested," Bossidy said.

The deal has been approved by both companies' boards of directors but still needs clearance by the companies' shareholders and regulatory officials.

AlliedSignal will lose the name created in 1985 by the merger of Allied Corp. and the Signal Cos. "They have a better worldwide brand than we did, so we made a concession on that point," Bossidy said.

The companies expect to save $500 million within two years by integrating their research and development and purchasing. The new company would eliminate 2,000 jobs within the first six months after the deal closes and an additional 2,500 the following year.

Honeywell shareholders would receive 1.875 shares of AlliedSignal common stock for each share of Honeywell they own.

The combination would give the new company the marketing might to approach current airline customers with packages that will save both the airlines and the new Honeywell money, said Nicholas Heymann, a Prudential Securities analyst.

Honeywell's main aerospace products include cockpit, display, communication and flight-management systems. Its space and aviation controls division had $2.34 billion in sales last year, or almost 30 percent of its total revenue.

The combined company would be able to insulate itself more from the swings in the aerospace industry as airlines upgrade their flight systems, Heymann said.

Information from Seattle Times reporter Patrick Harrington is included in this report.