David Cote Doesn’t Believe in Going Hostile

David Cote really is a man of his word.

This winter the Honeywell International CEO agreed to sit for a video interview before our annual America’s Most Honored Companies dinner at the Mandarin Oriental in New York. Two days earlier Honeywell had announced that it was dropping its unsolicited, $90 billion offer to buy rival United Technologies Corp., providing what I knew would be great fodder for our conversation. The only problem was that on the afternoon of the dinner we received a call from Cote’s people that the Honeywell CEO had to cancel because he wouldn’t be able to get into the city. I couldn’t help but think there was a connection between the failed UTC bid and my failed interview, but Cote, true to his word, agreed to meet a few weeks later at his company’s global headquarters in New Jersey.

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When I arrived at Honeywell’s Morris Plains campus on a rainy April morning, our video crew had set up by a window overlooking the company’s helicopter pad. Cote, on this day, made a conventional entrance, walking into the room and apologizing for being a few minutes late, explaining that he had needed to change into a suit for the interview.

Despite being one of the world’s highest-paid chief executives, Cote is a regular guy (or as regular a guy as someone who made $34.5 million last year can be). Unlike some CEOs, he is an excellent listener, as evidenced by his ability to take direction during the filming. Cote’s sensitivity to corporate culture has, in fact, been one of the keys to his success since he was recruited to Honeywell as CEO in 2002, after the European Union blocked the company’s merger with General Electric. As Cote reminded me during our interview, the idea of a Honeywell-UTC combination goes back to the GE deal. United Technologies revived merger talks four years ago, approaching Honeywell, and again about a year ago.

“The logic always made sense because we had complementary businesses in aerospace and buildings, and could create a more diverse company overall,” says Cote, a New Hampshire native who started his career at an auditor at GE. “It made a lot of sense when we approached them. The difference is when they approached us they liked the idea, and when we were approaching them they didn’t like the idea.”

In 2012, then UTC chief executive Louis Chênevert approached Cote with an offer to buy Honeywell at $65 a share, a $10 premium over its then price, but Cote rejected the deal, believing his company would be worth far more than that in a few years.

The Honeywell CEO turned out to be right. By the time Chênevert’s successor, Greg Hayes, came calling in April 2015 with another offer, Honeywell was trading at more than $100 a share. UTC was again rebuffed, and Hayes dropped the merger idea after his company’s shares plunged last summer following a profit warning — setting the scene for a Honeywell counteroffer in September 2015, which UTC executives “wanted nothing to do with,” Cote later told CNBC’s Jim Cramer.

Honeywell revised its proposal in February — its $90 billion, unsolicited bid — which was rejected by UTC management because of concerns over getting regulatory approval. “We concluded that a combination would be blocked outright or, even if it were possible to complete a transaction, the regulatory delay, required divestitures and customer concerns and concessions would ultimately destroy shareholder value far beyond any synergies,” Hayes wrote in a statement to shareholders.

Honeywell’s decision to drop its bid after twice being turned down by UTC was a no-brainer for Cote. “When you start to go hostile on a deal, price goes up and feelings get hurt,” he says. “You end up with a dynamic that I don’t think is good when you’re trying to build a company.”

Spoken like an executive who really understands his business.

See also David Cote’s video interview from the 2014 All-America Executive Team series.

Follow Mike Peltz on Twitter at @mppeltz.