Controlling the Spin: Honeywell Creates New Treasury Set-Ups for Standalone Businesses

In October 2017, Honeywell International announced its intention to spin off its Homes product portfolio and ADI global distribution business, as well as its Transportation Systems business, Turbo, into two standalone, publicly-traded companies. Here, members of the Honeywell treasury team and representatives from their banking partner, BNP Paribas, share their experiences of tackling these two spin-offs against a ticking clock. They also explain how proactivity, flexibility and clear communication ultimately made this non-standard implementation a success.

As soon as the announcement to spin off Turbo and Homes was made, Honeywell’s treasury team started to take action. The group’s CEO wanted the spin-offs completed by the end of 2018 – and the workload was not to be underestimated, especially since both Homes and Turbo were fully integrated into the existing treasury set-up, under the ‘One Honeywell’ treasury model.

As such, both businesses were participating in the Honeywell liquidity structure run by group treasury, including domestic and cross-border cash pools. They were also using the same TMS as all the other Honeywell legal entities worldwide and utilising the in-house bank.
  

Mapping the journey

A clear delineation would be needed between Homes and Turbo and the rest of Honeywell’s operations in order to begin the spin-off process. Treasury’s first step, therefore, was to understand the full landscape of legal entities involved. This was not an entirely straightforward task, however. As Marie-Astrid Dubois, the company’s Assistant Treasurer, EMEA, explains: “While the Turbo business was relatively well-defined, when it came to the Homes business, treasury was initially unclear which legal entities were actually impacted.” 

By working closely with the legal and tax departments over the next few weeks, treasury was soon able to define an initial list of legal entities for both spins. “With a little reconfiguration, we then used our TMS to work out which bank accounts would be ‘Remain Co’s’ and which would be Homes and Turbo after the spin-off,” says Dubois. “That approach gave us an initial picture of the countries and bank accounts in scope, which was a strong starting point,” she explains. “In Europe, the countries where BNP Paribas is our banking partner were France, Italy, Czech Republic, Romania and Bulgaria. Other countries in the EMEA region are covered by Barclays, Deutsche Bank, and HSBC.”

For both spins, the strategy was to replicate the existing Honeywell treasury set-up since there was no certainty about the future banking group at this point in time. Dubois’ vision for both Homes and Turbo was to build a fit-for-purpose treasury organisation that would allow the standalone companies to hit the ground running. That included full cash visibility cash concentration capabilities via domestic and cross-border zero-balancing cash pools, SwiftNet functionalities and integrated e-banking.

Rising to the challenge

“One of the more complex aspects was that we needed to use the same banking partners as Honeywell for the spins, since the banking groups for the standalone businesses were yet to be determined. So, armed with an outline of the potential strategy for both spins, the next step – in early December 2017 – was to reach out to our two main banking partners, one of which is BNP Paribas,” comments Dubois.

 “As well as updating the bank on what was happening, since we have a very transparent relationship, we also wanted to share our planned approach with them for feedback and ideas, as well as discussing the level of support we would be looking for from them,” she explains. “From the get-go, the bank was totally aligned with what we wanted to achieve. And that is precisely what you need for a project such as this: a banking partner who knows the business very well, is agile, willing to support you – and able to meet Honeywell’s high expectations.”

In fact, the moment that Dubois contacted Michiel Radder, Director, EMEA Cash Management, BNP Paribas Corporate and Investment Banking, to speak about the upcoming spins, he set the ball in motion. “We were extremely proactive from the start. This was by no means a standard implementation – and conducting two spins in a very short timeframe meant that we needed to mobilise our internal resources immediately, even before we were formally asked to do so.”

As such, Radder immediately began assembling a crack team for the implementation. Anne Groult, Senior Project Manager, BNP Paribas Cash Management was appointed as a dedicated resource for Honeywell during the implementation, having worked closely with the group for many years. “For clients such as Honeywell, who are always in ongoing implementation mode, we have assigned implementation managers who know the company very well, understand how they are structured and how they operate, and know the client on a personal level,” explains Radder. “We also drafted in Delphine Abesdid, Project Director, BNP Paribas Cash Management, as a second implementation manager since she has significant expertise when it comes to spin-offs.”

From Honeywell’s side, meanwhile, it was very much a team effort, led by Dubois. However, Patrice Coutanceau, Senior Regional Treasury Manager, Corporate Treasury EMEA, was elected as the point person on the BNP Paribas aspects of the project, liaising directly with the bank on a regular basis. This was a key success factor, since having dedicated resources on the treasury side made an enormous difference to the speed of progress.

Strong communication

Another important element was clear communication – not only between Honeywell and BNP Paribas, but also inside both organisations. As Radder explains, “Clients such as Honeywell are supported by BNP Paribas through global, regional and in-country teams. There needs to be full alignment between those teams for implementations to be seamless – and that was exactly what we delivered for this non-standard implementation.” Indeed, part of Radder’s role, as the Cash Management Relationship Manager to Honeywell, was to ensure everyone inside the bank was not only on the same page but completely understood the importance of the implementation, and the need to exceed the client’s expectations. 

He therefore organised calls with each of the country teams, and liaised consistently with the central implementation team, to ensure that the bank’s resources were fully focused and mobilised. Radder also made sure there was an appropriate chain of escalation in place for any red flag processes.

In addition, Radder stressed to all of the bank’s teams the need for flexibility throughout the implementation. “For all clients, we follow a very robust ISO-certified process for implementations, beginning with an in-depth scoping exercise. But we knew that Honeywell needed to move quickly. So, we adapted our processes accordingly and sped up the timeline significantly. This was possible because we build flexibility into all of our protocols to enable the bank to respond proactively to client needs.”

Time for action

With the Honeywell and BNP Paribas teams in place and fully briefed, several joint brainstorming sessions then took place in early January 2018, assessing cash pooling options, cash visibility, timing, and resources. Together, Honeywell and BNP Paribas worked out the finer details of the new structures for Homes and Turbo. Both parties also agreed that it made sense to prioritise the Turbo carve-out first, as low-hanging fruit. 

Over the following weeks and months, Coutanceau and Groult worked closely together to co-ordinate everything; from ensuring the local BNP Paribas teams were aligned for implementation of the cash management solutions, to working with other internal Honeywell teams, like IT, to develop new banking files for the automatic uploads required by the standalone companies. In addition, catch up calls took place between BNP Paribas and Honeywell at least once a week, often twice or three times a week. 

“Having such regular communication and close co-operation was vital, especially given the large number of legal entities and countries involved in the Homes spin-off,” says Groult. Meanwhile, Coutanceau says that “by working together, both Honeywell and the bank were able to be extremely proactive, and constantly think one step ahead – which was critical given the short timeline for the spins.” 

This collaborative approach also helped ensure that the relevant paperwork was circulated, signed and returned in a timely fashion – by both Honeywell and BNP Paribas. In fact, completing the paperwork was arguably one of the toughest elements of the entire project, says Coutanceau, since some of the cash pooling set-ups required were effectively pan-European, and involved a number of legal entities.

Another challenge Honeywell and BNP Paribas encountered was the fact that neither of the new ultimate parent company for each spin-off had a credit rating at the time that the cash management structures were being set up. “No credit analysis could be completed as, naturally, no numbers could be provided,” explains Radder. “Nevertheless, we had the assurance of Honeywell that the relevant credit ratings would be in place in time. The mutual trust in our relationship enabled us to put in place a number of waivers in order to push the documentation through for the zero balancing. And this is a good example of the flexible approach we took to help make this implementation as success.” 

Dubois sees this level of trust as a key success factor in the project. “Our whole partnership with BNP Paribas revolves around trust. We trust each other’s word. We trust each other to deliver. And that enables us to be proactive in moving forward, always being able to anticipate the next move,” she explains. This is the approach that Honeywell has with all its tier 1 banking partners, including BNP Paribas, and is a critical success factor for delivering challenging projects, such as this.

“This was extremely important with the Homes and Turbo spin-offs since the time pressure to deliver was significant. Staying a step ahead was absolutely critical, therefore,” she adds. And the hard work, proactivity, flexibility, and dedication of both teams has paid off.

“Now the Turbo spin-off is nearing completion. A new treasurer is in place and one of the final remaining tasks prior to the spin date is to complete  the external financing. While the Homes process has been much more complex, with de-merging to perform, new entities and bank accounts to set up, and numerous legal and treasury steps required to reflect the asset transfers, the spin-off is still due to happen within the next few months. And we will then tackle the external financing. So, we are well on track for our Q4 target,” says Dubois.

Although that may be the end of the spin-offs from a Honeywell point of view, “for Homes and Turbo it is the start of a new chapter – one in which BNP Paribas hopes to play an active partnership role going forward,” concludes Radder.