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Honeywell’s Resins and Chemicals Business Is Changing

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Honeywell to divest Resins and Chemicals business

On May 12, 2016, Honeywell (HON) announced that it would spin off its Resins and Chemicals (VAW) business into a standalone public company called AdvanSix. Shares of AdvanSix will be distributed to Honeywell shareholders on a proportional basis. Except for the cash received in place of fractional shares, the distribution will be tax-free for Honeywell’s common stockholders.

The spinoff is expected close by 1Q17. The record date, or the date that Honeywell will use for its ownership records for distribution, hasn’t yet been declared. Following the spin-off, the equity value of Honeywell’s common stock won’t reflect the value of AdvanSix.

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AdvanSix overview

The Resins and Chemicals (IYM) business is a leading manufacturer of Nylon 6, a synthetic polymer used to manufacture plastics, fibers, filaments, and films. Nylon 6 sales contributed $312 million in sales and constituted 24% of total AdvanSix’s sales in 2015.

AdvanSix’s business can be classified into three segments, all of which sell products derived during the process of manufacturing Nylon 6. These segments are discussed in detail below. AdvanSix competes with BASF (BASFY) and Sinopec (SHI) in the market for these products.

  1. Caprolactam: AdvanSix is the single largest producer of caprolactam, which is a key chemical compound used in the manufacturing of Nylon 6. 50% of the compound is used internally to make Nylon 6, while the rest is sold to external customers. Caprolactam contributed $247 million—or 19%—to AdvanSix’s sales in 2015.
  2. Ammonium sulfate: Ammonium sulfate fertilizer is a co-product in the caprolactam manufacturing process. AdvanSix is the world’s largest single-site producer of ammonium sulfate, which contributed $351 million—or 27%—to AdvanSix’s sales in 2015.
  3. Acetone and others: Acetone and other chemicals are manufactured from co-products derived from the caprolactam manufacturing process. These products contributed $390 million—or 30%—to AdvanSix’s sales in 2015.
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