Johnson Controls, which operates a battery plant in Middletown and has offices for its building energy management systems in Delaware, will merge with Tyco, a global fire and security systems provider.The deal will employ a tax inversion strategy aimed at reducing taxes paid in the U.S. which has one of the world’s highest corporate income tax rates.
Tyco stock has been a lackluster performer in the past year or so.
Drug giant Walgreens attempted an inversion strategy, but backed away after stiff opposition. Tyco, which is incorporated in Delaware, has used the strategy over the years and Johnson Controls would simply use that company’s Irish domicile.
Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Current Tyco shareholders will own approximately 44 percent 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 and chief executive officer, 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 combination of Tyco and Johnson Controls is a highly strategic, value-enhancing step that brings together the unique strengths of two great companies to deliver best-in-class building technologies and services to customers around the world,” said George R. Oliver, chief executive officer, Tyco. “We believe this transaction will allow us to better capture opportunities created by increased connectivity in homes, buildings and cities. Joining forces with Johnson Controls pairs our leading established businesses with robust innovation pipelines and extensive global footprints to deliver greater value to customers, shareholders and employees of both companies.”
Under the terms of the proposed transaction, the businesses of Johnson Controls and Tyco will be combined under Tyco International plc, which will be renamed “Johnson Controls plc.”
Upon the closing of the transaction, the combined company plans 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.
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 Adient, an automotive supplier, at the beginning of fiscal year 2017.
Johnson Controls, at one time, operated an automotive seating plant in Delaware, prior to that industry existing the state.
Tyco has focused and leading portfolio in fire and security that will complement Johnson Controls’ buildings platform.
The new company expects to deliver at least $500 million in operational synergies over the first three years after closing. These annual cost synergies are expected to be achieved by increasing efficiencies, eliminating redundancies, integrating the global branch networks, and leveraging the combined scale of an over $20 billion buildings business platform. In addition, the transaction is expected to create at least $150 million in annual tax synergies (lower taxes).
It was current DuPont CEO Edward Breen who restructured Tyco, a one- time conglomerate whose previous CEO ended up in prison on charges of misusing company funds.
Breen left Tyco and ended up with a $150 million payout. A similar big payday could occur if plans for a merger of DuPont and Dow and a split-off into three companies becomes a reality.
Breen will be CEO of DowDuPont, but his role is uncertain after the split-up, which could take a couple of years to complete.
