Resideo stock soars after eliminating Honeywell payment obligations

Investing.com -- Resideo Technologies Inc (NYSE:REZI) stock surged 19.3% after the company announced it will eliminate all future payment obligations to Honeywell International Inc (NASDAQ:HON) and plans to separate its ADI Global Distribution business through a tax-free spin-off.

The building products manufacturer has entered a definitive agreement with Honeywell to accelerate and terminate all obligations under their 2018 Indemnification and Reimbursement Agreement. Resideo will make a one-time cash payment of $1.59 billion to Honeywell in the third quarter of 2025, eliminating annual payments of up to $140 million that were scheduled to continue through 2043.

The company plans to finance this payment through approximately $400 million in cash-on-hand and new senior secured debt financing committed by J.P. Morgan and Wells Fargo (NYSE:WFC).

Simultaneously, Resideo announced its intention to separate its ADI Global Distribution business through a tax-free spin-off to shareholders, expected to complete in the second half of 2026. Following the separation, Resideo will continue operating its Products & Solutions business while ADI will become an independent public company.

"This agreement with Honeywell marks a significant turning point for Resideo and exemplifies the constructive relationship we have forged with Honeywell," said Jay Geldmacher, Resideo’s President and CEO. "With the closing of this agreement, we expect to significantly enhance our strategic and financial flexibility while also providing simplicity and clarity for our investors."

Oppenheimer analyst Ian Zaffino upgraded Resideo Technologies from Perform to Outperform with a price target of $35.00. The analyst commented, "REZI will no longer pay HON $140M/year for the next 18 years. Instead, REZI will make a lump-sum payment of $1.59B in 3Q25 to get out of the obligation (~6% IRR). Not only will the agreement eliminate the $140M drag on annual EBITDA, it will also allow REZI to spin off its very high-quality distribution business, ADI, by 2H26."

The company also announced it expects to exceed its previously provided second quarter 2025 outlook for revenue, adjusted EBITDA, and adjusted earnings per share.

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