Last week’s news was a bombshell, but insiders claim that the two companies have had periodic merger discussions for a decade.

AlliedSignal chairman Lawrence Bossidy remains until his retirement next April, when Honeywell chairman Michael R. Bonsignore will succeed him.

The new company plans to save $500 million annually for the next several years by trimming overhead costs, sharpening procurement practices, and cutting 4,000 or more jobs — half within six months, the other half by attrition.

Even more savings will result from the synergy of distribution of two key products. The products move through a network of wholesalers that are themselves undergoing a profound reshaping, as are the original equipment manufacturers who are big-volume buyers of controls and refrigerants.

The $13.8 billion deal, announced last Monday, also continues the consolidation of the big players in the industry — a trend that has been developing for the past decade among manufacturers, distributors, and contractors. Bigger vendors are selling through bigger distributors to bigger contractors, with each sector measuring its sales activity in the billions of dollars.

Also, the aggressive entry of newly deregulated gas and electric utilities into the sales and servicing of hvac equipment adds another tile to the new mosaic of the industry.

Honeywell name

“They [Honeywell] have a better worldwide brand [recognition] than we did, so we made a concession on that point,” said Lawrence Bossidy, AlliedSignal chairman. AlliedSignal was created in 1985 by the merger of Allied Corp. and the Signal Companies.

Honeywell sells about $3.4 billion in building temperature controls around the world to oem’s and the aftermarket, matching AlliedSignal’s offering of refrigerants to the same two markets. About one-third of Honeywell’s controls sales come from the North American market.

Both companies have grown with the past construction and aviation boom, and even more with the building replacement market, which encompasses more than 10 million housing units and five million nonresidential structures.

Honeywell’s share of building temperature controls for both the oem market and the replacement market is estimated at up to 50%.

Both companies sell to the ultimate customer, the hvacr contractor, but there is relatively thin commonality between the distributor-customers of the two manufacturers. However, here, too, consolidation of wholesalers in the industry is uniting two once separate groups: refrigeration-air conditioning (represented by ARW) and “warm air” wholesalers (represented by NHRAW).

To many hvacr contractors, these distinctions have little meaning since the “air conditioning” is a spectrum that includes both heating and cooling, and involves the use of both refrigerants and controls systems.

The development of virtually national distributors like Pameco, Watsco, Johnstone Supply, W.W. Grainger, and United represents about $3 billion in sales. Honeywell sells to the big majority of America’s wholesalers; AlliedSignal’s base is the refrigeration wholesaler.

The move may accelerate Honeywell’s entry into refrigeration controls, said John Ehlen, president of Controls Group of North America and a former Honeywell executive.

“I could easily foresee three to five years out, the integration of refrigeration and warm air heating controls to a higher degree than exists today,” he said.

The change in distribution patterns has arrived with surprising suddenness, according to Ehlen. “It’s faster at any time in my 28 years in the industry.”

Ehlen’s group exemplifies the trend, accounting for more than $400 million in purchases for wholesalers representing 140 outlets in the U.S., making it the sixth largest purchaser of supplies in the country.