Johnson Controls to merge with Tyco; US$30 bn deal

US-based multi-industrial company Johnson Controls that has been interested in acquisitions to complement its businesses and replace lost revenue from the spin off of its automotive seating business is to merge with Tyco, a global fire and security provider, to create a leader in building products and technology, integrated solutions and energy storage.

Tyco, with US$10 billion yearly sales, will be purchased by Johnson Controls, with sales of US$37 billion last year in automotive parts, batteries and smart-buildings systems. The deal is valued at more than US$30 billion based on the market value of both firms.

Under the terms of the agreement, Johnson Controls shareholders will own approximately 56% of the equity of the combined company and receive aggregate cash consideration of approximately US$3.9 billion. Current Tyco shareholders will own approximately 44% of the equity of the combined company.

"The proposed combination of Johnson Controls and Tyco represents the next phase of our transformation to become a leading global multi-industrial company," stated Alex Molinaroli, Chairman/CEO, Johnson Controls. "With its world-class fire and security businesses, Tyco aligns with and enhances the Johnson Controls buildings platform and further positions all of our businesses for global growth. Through this transaction, we will also expand our ability to further invest globally, develop new innovative solutions for customers and return capital to shareholders."

The companies expect that shares of the combined company known as Johnson Controls PLC will be listed on the New York Stock Exchange. It is also expected to maintain Tyco's Irish legal domicile and global headquarters in Cork, Ireland. The primary operational headquarters in North America for the combined company will be in Milwaukee, where Johnson Controls has been based.

The base of the new company in Ireland is an attempt to avoid higher US corporate taxes. Tyco and Johnson Controls said they expect annual tax savings of at least US$150 million. In addition, the companies said they expect to save US$500 million over three years from combining their operations.

Johnson Controls is in the midst of a strategic transformation to become a top-quartile multi-industrial company with leadership in attractive spaces connected to core growth platforms in buildings and energy storage. This focus has resulted in significant portfolio changes over the past few years including the divestiture of its Automotive Electronics and Interiors and Global Workplace Solutions businesses, as well as the acquisition of Air Distribution Technologies and the formation of Johnson Controls - Hitachi joint venture.

The company announced in July 2015 that it is planning to spin off the new company to be known as Adient at the beginning of fiscal year 2017. Adient will be the name of its automotive seating and interiors business after the entity is spun off into a new publicly traded company in October 2016. Adient is projected to have US$17 billion in annual sales.

Both Johnson Controls and Tyco shareholders will receive shares of Adient (Johnson Controls Automotive Experience) which will be distributed after the merger.

Tyco has transformed from a diversified holding company to one focused in fire and security after having sold off assets including ADT alarms and TE Connectivity from 2005 onwards. Its core strengths now include security and fire systems integration, commercial security monitoring, as well as fire, security and life-safety products.

The completion of the transaction, which is expected by the end of fiscal year 2016, is subject to customary closing conditions, including regulatory approvals and approval by both Johnson Controls and Tyco shareholders.

The combined company is expected to have 11 directors, consisting of six directors from Johnson Controls and five directors from Tyco. Alex Molinaroli will initially run the combined company for 18 months and will be replaced by Tyco’s CEO George Oliver.