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In re Honeywell International Inc. Securities Litigation

April 13, 2004

IN RE HONEYWELL INTERNATIONAL INC. SECURITIES LITIGATION


The opinion of the court was delivered by: Debevoise, Senior District Judge

FOR PUBLICATION

OPINION

In this securities action under § 10(b) of the Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder), Plaintiffs move under Fed. R. Civ. P. 23 for certification of the litigation as a class action, and for certification of a class consisting of purchasers of the stock of Defendant Honeywell International, Inc. ("Honeywell") from December 20, 1999 to June 19, 2000. *fn1 In connection with the motion they request that lead Plaintiffs Jefferson State Bank, Local 144 Nursing Home Employees Pension Fund ("Local 144"), and the City of Monroe Employees Retirement System ("City of Monroe") be certified as class representatives. Because the claims of the proposed class members and representatives satisfy the requirements of Rule 23, Plaintiffs' motion will be granted.

BACKGROUND

The essential background for the class certification analysis consists principally of the allegations in the Consolidated Complaint, dated January 31, 2001 (the "Complaint"), a detailed summary of which appears in this Court's prior opinion on Defendants' motion to dismiss under Fed R. Civ. P. 12(b)(6) (dated January 15, 2002). As a general matter, Plaintiffs allege that Defendant Honeywell and certain of its directors and officers (including Defendants Michael R. Bonsignore, Giannantonio Ferrari, and Richard F. Wallman) engaged in a scheme to defraud investors by misrepresenting the success of Honeywell's merger with AlliedSignal, Inc. *fn2 Plaintiffs claim that Defendants misrepresented and concealed material facts relating to Honeywell's operations and financial performance - in a scheme that began in December of 1999 and continued into June of 2000.

Supplementing the Complaint, Plaintiffs provide in connection with this motion excerpts from Honeywell's reports on form 10-K for 1999 and 2000 - showing that holders of Honeywell stock numbered in the thousands. They also provide firm resumés for proposed class counsel Milberg, Weiss, Bershad, Hynes & Lerach, LLP ("Milberg") and (as liaison counsel) Cohn Lifland Pearlman Herrmann & Knopf LLP ("Cohn Lifland") - offering accounts of Milberg's extensive history of involvement in large and complex securities law class actions, and indicating that Cohn Lifland also has considerable experience in the field.

In opposing the motion, Defendants rely in large measure on selections from the Complaint itself, emphasizing allegations that describe the vast scale and great complexity of the attempt to integrate the operations of Honeywell and AlliedSignal, and allegations that describe the skepticism with which the Honeywell/AlliedSignal merger was greeted. For example, Defendants point to analyst reports quoted in the Complaint indicating that investors were anxious about the company's prospects and regarded its stock as a "show-me story." Defendants also present an array of additional materials containing statements that they argue diminished or cured the effect of the company's alleged misrepresentations.

Defendants quote the proxy statement issued in connection with the merger, which contained general cautionary language to the effect that the anticipated benefits of the merger might not be realized "as fully or as quickly" as expected for a number of reasons including the size and complexity of the operations. They also quote similar general cautionary statements in Honeywell's Annual Report for 1999; and they point to a number of statements that they contend substantially revealed many of the unfavorable, allegedly undisclosed "true facts" that, according to Plaintiffs, belied Honeywell's representation of the merger as a success. Defendants contend that these cautionary and unfavorable disclosures diminished the effect on the market of the alleged misrepresentations. A list of statements on which Defendants rely follows; where the statements to which Defendants refer relate specifically to alleged misrepresentations or omissions, references to the appropriate misstatements and/or omissions are provided *fn3

December 20, 1999 Investor Conference

1. A statement to the effect that the company had had "challenges" in some of its "end markets" with Polyester and Nylon sales down 2% Plaintiffs allege that Honeywell concealed the fact that it had imposed unsustainable (and badly received) price increases on its customers in this area - increases that inflated its results temporarily and would ultimately result in a downturn in business. (Later statements to which Defendants refer on the same topic are also apparently cited as curative of this alleged omission.)

2. A statement indicating a decline in Honeywell's air transport sales for 2000 resulting from "a long lead nature of some of our components"

The Complaint alleges that the Aerospace Solutions Unit had "serious and persistent problems" in obtaining a sufficient supply of components - a problem that would not be remedied until the 4th quarter of 2000. (Later statements to which Defendants refer on the same topic are also apparently cited as curative of this alleged omission.)

July 19, 2000 Analyst Conference Call and July 19, 2000 Press Release

3. A statement by Honeywell's Vice President and Controller with respect to merger savings that fourth quarter 1999 results would be similar to the first quarter of 2000, "basically a wash"

As already noted, Plaintiffs allege that the company repeatedly misrepresented the success of the merger. Defendants suggest that this statement revealed that Honeywell was not achieving the merger synergies it had forecast. *fn4

4. Disclosures of (1) significant declines in margins and earnings in the Performance Materials segment (resulting from increased raw materials prices and price pressures) and (2) the fact that the polyester and nylon businesses continued "to experience some of the most difficult conditions we've seen"

5. Disclosures of overall declines in the Aerospace business

6. Disclosure of the adverse impact of lower deliveries of large scale industrial systems on the Industrial Solutions business

7. Disclosure of lower revenues in the Automation business (a "modest" decline attributed to strength in the U.S. Dollar)

Plaintiffs allege that as a result of disruptions related to the merger Honeywell lost between $200 and $500 million in revenue from lost customers.

8. Disclosure of operations "issues" at facilities in the pharmaceutical and chip packaging businesses that had impacted earnings

Plaintiffs allege that Honeywell's generic drug business was performing poorly - incurring $40-60 million in losses; and they allege that Honeywell's semiconductor circuit board interface project, including its pilot manufacturing operation for chip packaging, had failed, causing $40-60 million in losses.

9. A statement that "industrial control revenues were depressed by the impact of weak end markets"

March 31, 2000 Annual Report

10. A statement that Performance Materials Sales had decreased $162 million (4%) in 1999 and that profits had decreased $195 million (31%) - the decrease attributed to "continuing pricing pressures in the Performance Polymers and Electronic Materials businesses and higher raw materials costs in certain Performance Polymers businesses"

11. Disclosure of "lower sales for the Friction Materials business due to pricing pressures and weakness in the European market"

The Complaint alleges as a concealed "true fact" that Honeywell's Power and Transportation Products unit was performing below expectations in part because of weak sales of friction materials. (Plaintiffs also claim that the underperformance was traceable to other factors, including component parts shortages and ...


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