Johnson Controls buys Tyco to merge building-control outfits2 min read . Updated: 25 Jan 2016, 07:52 PM IST
Johnson Controls is continuing with its plan to spin off its automotive-seating operations, slated by year-end
Paris/New York: Johnson Controls Inc. agreed to merge with Tyco International Plc, combining the companies’ building- control businesses. The deal would move Johnson Controls to Ireland, where corporate tax rates are lower.
Shareholders of Johnson Controls will own about 56% of the combined company and receive aggregate cash consideration of about $3.9 billion, the companies said in a statement on Monday. The companies expect the deal to close by the end of September. Johnson Controls shareholders may choose one share of the combined company or $34.88 per share in cash.
Johnson Controls is continuing with its plan to spin off its automotive-seating operations, slated by year-end. A consummated deal would complete the transition of Johnson Controls from a diversified manufacturer of auto parts, batteries and building controls into two more focused companies. A merger also would end of one of the last vestiges of Tyco, the onetime conglomerate that divided into multiple companies after former chief executive officer Dennis Kozlowski was forced out in 2002 and later went to prison.
Milwaukee-based Johnson Controls has been trying to reduce its reliance on the auto-parts industry, which accounted for about 54% of its fiscal 2015 sales. Johnson Controls’ chairman and CEO Alex Molinaroli will have the same roles at the combined company for 18 months after the closing, while Tyco CEO George Oliver serves as president and chief operating officer, as well as director. Then Oliver will become CEO while Molinaroli serves as executive chairman for a year, until Oliver takes both roles.
“Johnson Controls has been on a multiyear trajectory to transform into a true industrial growth company. I think this acquisition fits well in that strategy," said Noah Kaye, an analyst at Oppenheimer & Co. “Fundamentally, we see this as a company with advanced energy storage and advanced building controls capabilities and the Tyco products should integrate well."
Tyco, which is based in Ireland and run from Princeton, New Jersey, is today a maker of commercial fire and security systems with a stock-market value of $13 billion as of Friday. The combined company will have its primary operational headquarters in North America in Milwaukee.
The US corporate income tax rate, 35%, is the highest in the developed world, and certain corporate tax laws mean an independent US company could end up paying more taxes than an identical US company owned by a foreign parent. Since 1982, more than 50 American companies have reincorporated in low-tax countries, with Ireland becoming a popular corporate home. Its corporate tax rate is 12.5%.
The manoeuvre, known as an inversion, has become more frequent since 2012 and has become an issue in the US presidential race, with Donald Trump and Hillary Clinton among those calling for an end to the practice. Tyco itself got a foreign tax address in the late 1990s through an inversion. That transaction involved a takeover of the security company ADT, which was incorporated in Bermuda.
Centerview Partners is serving as Johnson Controls’ lead financial adviser, while Barclays Plc also provided financial advice. For Tyco, Lazard is lead adviser, Citigroup Inc. is providing financing and Goldman Sachs Group Inc. also provided financial advice.
Johnson Controls also said that it earned an adjusted profit of 82 cents per share in its fiscal first quarter, while Tyco said it earned 42 cents. Both figures were within or better than the companies’ forecasts. Johnson Controls will report full earnings 28 January, Tyco on 29 January.
Tyco shares jumped 12% to $34.20 at 8:17 a.m. New York time, before regular trading. Johnson Controls gained 1.1% to $35.98. Bloomberg