Delphi, Continental Said to Bid for Johnson Controls Unit
Johnson Controls received first-round bids this month and is now setting up meetings between management and suitors such as Delphi and Continental, said one of the people, who asked not to be named because the process is private. Johnson Controls said March 6 that JPMorgan Chase & Co. had been hired to explore a possible sale of the division.
Two other bidders were Paris-based supplier Valeo SA (FR) and electronics firm Harman International Industries Inc. (HAR), said one of the people. Fabienne de Brebisson, a spokeswoman for Valeo, said today that the French company isn’t bidding.
Johnson Controls expects second-round bids in a few weeks, said one of the people. The company, the largest U.S. auto-parts maker, is considering the sale to free up cash and focus on more profitable divisions, such as car seats, a person familiar with the matter said last month.
While Chinese automaker SAIC Motor Corp. also expressed interest in the business, the company has decided not to pursue the unit, said two people familiar with the matter.
Fraser Engerman, a spokesman for Milwaukee-based Johnson Controls, declined to comment, as did a representative for Continental. Spokesmen for Delphi and Harman didn’t respond to requests for comment. A U.S. spokesman for Shanghai-based SAIC didn’t immediately respond to a request for comment.
Johnson Controls got more than half of its $42 billion in revenue in the year ended in September from its auto-parts unit. The company also makes auto batteries and equipment for managing building climates and security. Johnson Controls is only allowing companies such as auto suppliers to bid on the asset, preventing private-equity firms from being part of the process, the people said.
Automakers are increasingly turning to software companies to supply technology, making it more difficult for hardware suppliers like Johnson Controls to compete in electronics, Mark Boyadjis, a senior analyst with IHS Automotive, said in an interview.
“To be a relatively minor hardware supplier is difficult,” he said. “I’m sure they looked at books and decided it would be hard to hard to get that scale on their own.”
Earlier today, Johnson Controls reported that fiscal second-quarter earnings fell 61 percent to $148 million, or 21 cents a share. Excluding some costs, Johnson Controls had a per-share profit of 42 cents, matching the average estimate of 23 analysts surveyed by Bloomberg.
Johnson Controls Chief Executive Officer Stephen Roell told analysts on a conference call following the earnings announcement that he would have to invest more in the business to make it a stronger player.
“In order to participate in a bigger way and sustain that business, we were going to have to make investments in navigation and other types of technologies,” Roell said. “And we just had to make a decision whether or not that was the business we wanted allocate capital to.”
The electronics unit accounted for about $1.4 billion of Johnson Controls’s revenue last year, according to a company presentation to analysts in December, about 3 percent of the total, selling infotainment systems, instrument clusters and electronics that control door locks and monitor tire pressure.
Johnson Controls rose more than 1 percent to $33.49 as of 4 p.m. New York time, for a market capitalization of about $23 billion.