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August 25, 2005
Johnson Controls looks beyond auto sector
Someone has to pay for all those discounts that are driving auto sales. That someone often ends up being the CFO at the auto parts business which supplies one widget or another to the car manufacturer. Private equity investors active in this sector say the big car makers torment their suppliers with low-margin and no-margin deals and a take-it-or-leave it attitude.
Now it looks like at least one major car parts supplier has had enough. Late Wednesday, auto part supplier Johnson Controls said it was diversifying its business into the more-promising building construction business by acquiring York International for $3.2 billion in cash.
York, which makes climate control and ventilation systems, has a strong presence outside the in U.S. in growth markets from Eastern Europe to Asia. The deal will give two U.S industrial companies--Johnson is based in Milwaukee, York in York, Penn.--a strong presence in the global market. And the deal makes sense as a logical extension of Johnson's core business.
The question now is whether the combined company will remain independent. It's just the sort of business that would make an ideal acquisition for a company based in China, where demand for these products is huge and the potential for shifting labor to lower-cost regions is high. And the political profile of the industry is low, making a deal feasible from the regulatory point of view. These are big, high-tech companies. But they aren't household names, and it's hard to argue that they're crucial to national security, unless you consider jobs a necessity. My guess is that the story with this company isn't half over.
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Posted by: Sashok! at December 23, 2005 07:16 AM