Case 2:00-cv-03605-DRD-SDW Document 53 Filed 01/31/2001 Page 1 of 37 °' COHN LIFLAND PEARLMAN HERRMANN & KNOPF PETER S . PEARLMAN New Jersey Bar No. PP8416 West One Park 80 Plaza FC 1\I 1 Saddlebrook, NJ 07663 Telephone: 201/845-9600 JAN 3 1 2001 I MILBERG WEISS BERSHAD HYNES & LERACH LLP /,T WILLIAM S. LERACH ARTHUR C. LEAHY KATHLEEN A. HERKENHOFF DENISE M. DOUGLAS 0 600 West Broadway, Suite 1800 San Diego , CA 92101 Telephone: 619/231-1058 - and - STEVEN G. SCHULMAN SAMUEL H. RUDMAN 0 - One Pennsylvania Plaza New York, NY 10119-0165 Telephone : 212/594-5300 Attorneys for Plaintiff 9 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY IN RE HONEYWELL INTERNATIONAL, Lead Case No. CV-00-3605- (DRD) • INC. SECURITIES LITIGATION, (Consolidated Cases) CLASS ACTION CONSOLIDATED COMPLAINT FOR THIS DOCUMENT RELATES TO VIOLATION OF THE SECURITIES • EXCHANGE ACT OF 1934 ALL ACTIONS DEMAND FOR JURY TRIAL • • • Case 2 : 00-cv-03605-DRD-SDW Document 53 Filed 01/31/2001 Page 2 of 37 Plaintiff alleges: INTRODUCTION AND OVERVIEW 1. This is a securities class action on behalf of all purchasers of the stock ofHoneywell International Inc. ("Honeywell" or the "Company") between 12/20/99 and 6/19/00 (the "Class Period") seeking to pursue remedies under the federal securities laws. 2. In early 99, Honeywell and AlliedSignal, Inc. ("Allied") announced they would merge to create a huge, 120,000 employee, $20+ billion revenue per year worldwide conglomerate providing aerospace products and services, control technologies for buildings, homes and industry, specialty chemicals, fibers and plastics and electronic and advanced materials, conducted by four strategic business units: Aerospace Solutions, Automation & Controls, Performance Materials and Power & Transportation Products. Honeywell was the name of the surviving entity, i.e., "new". Honeywell. The merger became effective on 12/1/99. Michael Bonsignore, Honeywell's CEO, immediately became the CEO of "new" Honeywell and its Chairman in 4/00 when Lawrence F Bossidy, Allied's long-time CEO and Chairman retired as Chairman of "new" Honeywell. 3.. During late 99, many analysts and members ofthe investment community viewed the impending Honeywell/Allied merger with skepticism, fearing that it would be difficult for these two large companies to quickly integrate their far-flung and diverse operations successfully and immediately achieve significantly accelerated revenue and earnings per share ("EPS") growth in 00- 01, which Bonsignore had been representing would occur after the merger. Asa result, Honeywell's stock was basically flat during 6/99-12/99, as the chart below shows: 1 b r Case 2:00-cv-03605-DRD-SDW Document 53 Filed 01/31/2001 Page 3 of 37 1 i A n Honeywell International, Inc. June 1, 1999 - December 1, 1999 $80 $60 $70 $70 $60 $60 $50 $50 $40 - -------- - -- - ------ ------------ --- $40 $30 ------------------------------------ $30 $20 ----- - -- $20 -- $10 ------------------------------- ------------ ---- $10 $0 $0 J J A S 0 N 0 4. Thus, upon the effectiveness of the merger in early 12/99, there was great interest among investors and analysts as to how the vital post-merger integration ofthe two companies.was proceeding and how Bonsignore and his management team would present the prospects ofthe "new" Honeywell to the investment community. This was a matter ofconsiderable import, since the "new" Honeywell was a huge company with over 795 million shares of common stock outstanding owned by thousands of shareholders, including a large institutional shareholder base, and its shares were listed on the New York Stock Exchange and included in major stock indices, including the Dow Jones Industrial Average and the Standard & Poor's 500. 5. Since performance of the "new" Honeywell was viewed as a direct test of and a challenge to Bonsignore and his management team, Bonsignore and his management team were under pressure to show that the merger was succeeding, that promised merger synergies and savings were being achieved and that Honeywell would immediately achieve strong EPS gains due to both accelerated internal growth and acquisitions , thus pushing Honeywell's stock price higher. They were also motivated to do so by a special new compensation plan implemented in connection with 1 -2- Case 2:00-cv-03605-DRD-SDW Document 53 Filed 01/31/2001 Page 4 of 37 the merger which would provide them millions of dollars in 00 for short-term earnings growth and stock appreciation, by Honeywell's business plan to achieve much of its forecasted growth by making acquisitions in 00-01 and by their desire to unload significant amounts of the Honeywell stock they owned to pocket millions in insider trading proceeds. In order to report on the progress ofthe merger integration process and the financial prospects of "new" Honeywell to analysts and the investment community, Honeywell held a major analyst and investor conference on Monday, 12/20/99, the first day of the Class Period. 6. In anticipation that Bonsignore and his management team would present a very bullish outlook for the "new" Honeywell at the 12/20/99 analysts' conference, Honeywell's stock moved higher, reaching $63-7/8 on Friday, 12/17/99. On 12120/99, Bonsignore and his management team held a huge conference for analysts and institutional investors in New York City. Bonsignore, Honeywell's EVPs and Chief Operating Officers, Giannantonio Ferrari and Robert Johnson, and Honeywell's SVP and ChiefFinancial Officer, Richard Wallman, made bullish presentations. They announced the first of what they indicated would be a series of acquisitions - Pittway Corp., a manufacturer of security and fire systems for homes and buildings -representing that this acquisition would not dilute Honeywell's 00 EPS and would materially benefit Honeywell's 01-02EPS. They also represented that the integration ofthe business operations and information technology/financial and accounting systems of "old" Honeywell and Allied wasproceeding successfully, that the "new" Honeywell wasforecasting hundreds ofmillions ofdollars in merger synergies and savings and accelerating internal growth which, combined with an ongoing acquisition program, wouldyield 20% EPS gains in 00 to $3.20-$3.25,17% EPS growth in 01 and 15% EPS growth in 02. Despite these positive presentations, Honeywell's stock declined, falling from $63-715 on Friday, 12/17/99 to as low as $56-112 on 12/20/99 and $53-15116 on 12/22/99, as analysts and investors waited for concrete evidence of the success of the merger and the new Honeywell management team's efforts. 7. Then, on 1/19/00, Honeywell reported "record" 4thQ 99 and 99 results. While Honeywell met its 99 EPS forecast of $2.65, its internal revenue growth was only 1%, its Performance Materials unit suffered a sharp decrease in profitability and its Aerospace business performed poorly. Analysts determined also that Honeywell's 4thQ 99 EPS were of questionable -3- Case 2:00-cv-03605-DRD-SDW Document 53 Filed 01/31/2001 Page 5 of 37 quality, benefitted by one-time events, including a lower tax rate and Honeywell's over-funded pension plan. However, Honeywell assured analysts and investors that Honeywell's Allied merger integration was already infull swing and succeeding and, as a result, the "new " Honeywell would achieve $250 million in merger integration savings in 00 alone (net ofimplementation costs) with further multi-hundred million dollar merger synergies and savings in 01 and 02 - hundreds of millions more in savings than earlierpromised. They also again assured analysts that the Pittway acquisition would not be dilutive to Honeywell's 00 results and that price increases by its Performance Materials unit were "sticking," leading to improved revenues and margins. Finally, Honeywell told analysts that the "new" Honeywell was raising its 00 cash flow forecast to $1.9 billion from $1.6 billion and was now on track to achieve "at least" 20% EPS growth in 00, followed by "at least " 17% EPS growth in 01 and compounded EPS growth of "at least" 18% over the next three years, forecasting annual revenue growth of 8%-10% as compared with the 1 % achieved in 4thQ 99. Notwithstanding this presentation, Honeywell's stock again fell, from $60- 3/8 on 1/18/00, to $52-1/2 on 1/19/00, to $44-5/8 on 1/27/00 and to its Class Period low of $42-1/4 on 2/11/00, as investors reacted negatively to the poor quality of Honeywell's reported 4thQ 99 EPS and performance of its Aerospace and Performance Materials units and continued their "show-me" attitude awaiting concrete evidence that the "new" Honeywell could achieve the promised merger synergies and savings and the 00-02 EPS revenue and EPS gains Bonsignore and his top executive team were forecasting. 8. The relatively poor performance of Honeywell's stock in 12/99 through mid-2/00, after the Allied/Honeywell merger became effective, was a source of tremendous concern to Bonsignore, Ferrari and the other members of the "new" Honeywell's top executive team, as Honeywell's Board and Honeywell's stockholders - especially its large institutional investors -were demanding they deliver on their promised merger savings and revenue and EPS growth in the near- term so that the underperformance ofHoneywell's stock would be reversed! This placed increasing pressure on Bonsignore and his management team to report stellar 1 stQ 00 results for Honeywell with strong revenue and EPS growth - and EPS of high quality - thus validating Bonsignore's representations about the success of the Allied/Honeywell merger, the Pittway acquisition and his -4- Case 2:00-cv-03605-DRD-SDW Document 53 Filed 01/31/2001 Page 6 of 37. ' forecasts for "at least" 20% EPS growth in 00 and "at least" 18%+ EPS growth during 00-02.