Johnson Controls Said in Talks to Combine With Tyco Intl

  • JCI said to continue with spinoff of automotive-seating unit
  • Companies said to plan merger of building-control businesses

Johnson Controls Inc. is discussing a merger with Tyco International Plc that would combine the companies’ building-control businesses, said people familiar with the matter.

Johnson Controls is continuing with its plan to spin off its automotive-seating operations, said the people, who asked not to be identified. Terms weren’t immediately available. Discussions were first reported on Sunday by the Wall Street Journal, which said a deal may be announced as soon as Monday and valued at as much as $20 billion.

A consummated deal would complete the transition of Johnson Controls from a diversified manufacturer of auto parts, batteries and building controls into two more focused companies. A merger also would end of one of the last vestiges of Tyco International Ltd., the onetime conglomerate that divided into multiple companies after former Chief Executive Officer Dennis Kozlowski was forced out in 2002 and later went to prison.

Milwaukee-based Johnson Controls has been trying to reduce its reliance on the auto-parts industry, which accounted for about 54 percent of its fiscal 2015 sales. Johnson Controls’ CEO, Alex Molinaroli, is expected to run the combined company, one of the people said. Johnson Controls has a stock-market capitalization of about $23 billion.

Tyco International Plc, which is based in Ireland and run from Princeton, New Jersey, is today a maker of commercial fire and security systems with a stock-market value of $13 billion as of Friday. Spokesmen for Tyco and Johnson Controls didn’t immediately respond to requests for comment.

Tyco shares trading in Germany exchanged hands at the equivalent of $38.96 as of 9:13 a.m. local time. That compares with its U.S. closing price of $30.59 on Friday. Johnson Controls traded at $35.5 a share, compared with its U.S. close of $35.6.

Automotive Spinoff

Johnson Controls will continue with its announced spinoff of the automotive-interiors operations, the people said. The company talked to at least one other merger partner with the idea of just combining forces with another business that makes building systems and technology, one of the people said.

The automotive business generated more than half of Johnson Controls’ sales last year but only about 36 percent of its profit. By contrast, the building-controls unit accounted for 28 percent of sales and 35 percent of profit.

Molinaroli, who became CEO in 2013, disclosed the spinoff possibility in June and in September said the move would lead to as many as 3,000 job cuts. The company’s shares have dropped 25 percent in a year, closing Friday at $35.60.

The spin out of the automotive business will happen in October, the company said Jan. 12. That business will be renamed Adient, said Bruce McDonald, the current Johnson Controls vice chairman who will become Adient’s chairman and CEO.

Adient expects to disclose financial information for the separated business in March or April, McDonald said this month.

Tyco’s Slide

Tyco shares fell 27 percent in 2015 as slow growth in the industrial and energy-related fields weighed on results. In November, the company provided a fiscal 2016 forecast that missed analyst estimates, saying the stronger U.S. dollar was also hurting the bottom line. Shares closed Friday at $30.59.

Tyco is one of several residual companies following the implosion of the former conglomerate led by Kowzlowski, who along with a former chief financial officer went to prison. Tyco International Ltd. was split into multiple companies during the tenure of Kozlowski’s successor, Ed Breen.

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