Johnson Controls Inc. (JCI), the largest U.S. auto-parts maker, rose the most in more than 19 months after announcing it will sell its HomeLink product line to Gentex Corp. for $700 million as it continues to seek a buyer for the rest of its automotive electronics unit.
The company’s shares climbed 8.3 percent to $40.43 at the close in New York, the biggest one-day gain since Nov. 30, 2011. Gentex’s shares fell 3.2 percent to $23.71.
Johnson Controls expects the deal to close late in fiscal 2013 or early fiscal 2014, the company said in its third-quarter earnings release. The HomeLink line of installed garage-door openers and the rest of the electronics business are worth more apart, Milwaukee-based Johnson Controls said. The company had been considering such a move for at least a month, people with knowledge of the matter said at the time.
Chinese and other international buyers will probably be interested in the remainder of the automotive electronics line, said Christian Mayes, an analyst at St. Louis-based Edward Jones. The company won’t likely divide the unit any further for individual buyers, he said.
“HomeLink is kind of the crown jewel of the automotive electronics business for them,” Mayes said. “It’s interesting that they chose to separate that one.”
The $700 million price for HomeLink was “far in excess of what we would have believed to be possible,” Matthew Stover, an analyst with Guggenheim Securities in Boston, wrote in a note today. The sale implies a valuation of 4.6 times estimated sales and 10.5 times estimated profit before interest, taxes, depreciation and amortization, wrote Stover, who has a buy rating on Johnson Controls.
Johnson Controls is in talks with “several strategic purchasers” for the remainder of the automotive electronics line and expects to have an announcement “on or before” its fiscal fourth-quarter earnings call, Chief Financial Officer Bruce McDonald told analysts and reporters today on a call. The Gentex sale will be made in cash, he said.
Delphi Automotive Plc (DLPH) had been among the bidders before backing off, people familiar with the matter had said. China’s SAIC Motor Corp. had also been identified as a potential buyer. Gentex, a maker of high-tech mirrors, is based in Zeeland, Michigan.
“HomeLink is a strategic and welcome addition to our portfolio of automotive products,” Gentex Chief Executive Officer Fred Bauer said in a separate statement.
Johnson Controls third-quarter net income rose 32 percent to $571 million. Excluding items such as restructuring costs and non-recurring tax benefits, the company earned 78 cents a share, topping 22 analysts’ average estimate of 75 cents. The company forecast earning 93 to 95 cents a share in its fourth quarter, more than the 92-cent average of 22 analysts’ estimates.
Shares of Johnson Controls have gained 32 percent this year, compared with 18 percent for the Standard & Poor’s 500 Index.
Mayes said the company’s growth this quarter was a result of cost savings and restructuring, rather than a boost from the rising U.S. car sales pace.
“They came out ahead of expectations,” Mayes of Edward Jones said.
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