Johnson Controls and Tyco entered into a definitive merger agreement under which Johnson Controls, a global multi-industrial company, will combine with Tyco, a global fire and security provider, and will together provide building products and technology, integrated solutions and energy storage.
Under the terms of the agreement, which was unanimously approved by both companies’ boards of directors, 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,” said Alex Molinaroli, chairman and 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.”
George R. Oliver, CEO, Tyco, said the combination brings together unique strengths of both companies to benefit customers around the world. “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,” Oliver said.
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.” The companies expect that shares of the combined company will be listed on the New York Stock Exchange and trade under the “JCI” ticker, Tyco reported in a press release. Upon the closing of the transaction, the combined company is 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 combined company brings together product, technology and service capabilities across controls, fire, security, HVAC, power solutions and energy storage, to serve various end-markets including large institutions, commercial buildings, retail, industrial, small business and residential. The combination of the Tyco and Johnson Controls’ buildings platforms creates immediate opportunities for near-term growth through cross-selling, complementary branch and channel networks, and expanded global reach for established businesses.
Tyco reported the new company will also benefit by combining innovation capabilities and pipelines involving new products, advanced solutions for smart buildings and cities, value-added services driven by advanced data and analytics and connectivity between buildings and energy storage through infrastructure integration. Tyco also reported the combined company will have one of the largest energy storage platforms with capabilities including traditional lead acid as well as advanced lithium ion battery technology serving the global energy storage market.
Johnson Controls stated it 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 it is planning to spin off Adient at the beginning of fiscal year 2017.
Tyco has transformed from a diversified holding company to an operating company with a focused portfolio in fire and security it says will complement Johnson Controls’ buildings platform. Tyco’s core strengths include security and fire systems integration, commercial security monitoring, as well as fire, security and life-safety products.
Pro forma for the transaction and separation of Adient, Johnson Controls is expected to have approximately $32 billion of revenue in fiscal year 2016 and $4.5 billion of EBITDA before synergies. Adient is expected to have approximately $16.6 billion of revenue in fiscal year 2016 and $1.6 billion of EBITDA. In addition, Adient is expected to distribute between $2.5 and $3.5 billion to Johnson Controls in conjunction with the spin-off, according to a Tyco press release.
Following closing of the transaction, the board of directors of the combined company is expected to have 11 directors, consisting of six directors from Johnson Controls and five directors from Tyco. Molinaroli will be the chairman and CEO of the combined company. Oliver will serve as president and COO and serve as a director on the new board, with responsibility for the operating businesses and leading the integration.
Molinaroli will serve as chairman and CEO for a term of 18 months after the closing. At that time, Oliver will become CEO and Molinaroli will become executive chair for one year, after which Oliver will become chairman and CEO.
Centerview Partners is serving as Johnson Controls’ lead financial advisor. Barclays is serving as financial advisor for Johnson Controls. Wachtell, Lipton, Rosen & Katz and A&L Goodbody are acting as its legal advisors.
Lazard is serving as Tyco’s lead financial advisor. Citi is providing the committed financing for the transaction and Goldman Sachs is serving as financial advisor for Tyco. Simpson Thacher & Bartlett and Arthur Cox are acting as its legal advisors.
Johnson Controls said its adjusted earnings per share for the first fiscal quarter are expected to be $0.82, compared with guidance of $0.80 to $0.83. Tyco’s earnings per share before special items are expected to be $0.42 versus guidance of $0.40.
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