Johnson Controls to buy Tyco in $16.5bn inversion deal

March 2016 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Johnson Controls Inc and Tyco International Plc announced in late January that they had agreed to a $16.5bn merger, a deal which will see another historic US company ‘invert’ and redomicile in Ireland.

According to a joint statement, the headquarters of the newly merged business will be in Cork, Ireland, a move which will allow the company to save at least $150m a year on taxes and at least $500m in costs over the first three years following completion of the deal. The inversion, according to data from Dealogic, is the 13th such transaction in the 16 months to January 2016.

News of the inversion drew a considerable degree of political ire. Democratic presidential candidate and senator, Bernie Sanders, called the two companies “corporate deserters”. Mr Sanders added, “If you want the advantages of being an American company then you can’t run away from America to avoid paying taxes”. Representative Gwen Moore, a Democrat, noted that she was “greatly disappointed” by the deal. “As long as House Republicans continue to block Democratic efforts to end corporate inversions, we can expect more US based companies to head overseas,” she noted.

Under the terms of the deal, which is one of the first big transactions of 2016, Johnson Controls’ shareholders will own around 56 percent of the equity of the combined company and will also receive an aggregate cash consideration of around $3.9bn. Existing Tyco shareholders will own the remaining 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 chief executive of 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.”

The merger will bring to an end the Tyco name after more than 50 years of operation. The company was originally founded in the US, as a research facility for the US government. However, through a number of major acquisitions the company soon became a diversified industrial powerhouse. Since the early 2000s the company has been subjected to a number of breakups and moved headquarters on a number of occasions. The company first ‘inverted’ in 1997 when it acquired ADT Ltd, and moved its headquarters to Bermuda. Twelve years later, Tyco’s shareholders voted to shift the company’s headquarters to Switzerland. In 2014, the company relocated to Cork, Ireland.

Following the break up and relocations, Tyco focused primarily on fire safety and security products. The remaining company, which had a market value of around $13bn, will now be subsumed into Johnson Controls. “The combination of Tyco and Johnson Controls is a highly strategic, value-enhancing step that brings together the unique strengths of two great companies to deliver best-in-class building technologies and services to customers around the world,” said George R. Oliver, chief executive of Tyco. “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.”

The new company, Johnson Controls Plc, will be initially led by Mr Molinaroli and continue to trade on the New York Stock Exchange. After 18 months, Mr Oliver will become CEO and Mr Molinaroli will become executive chair for one year, after which Mr Oliver will become chairman and CEO.

Despite the deal, changes will continue at the new Johnson Controls. The company has been preparing to spin off its automotive seating and interiors business for some time. According to the companies’ statement, the spinoff of the unit – which will be known as Adient – was still on track for the first fiscal quarter of 2017.

Richard Summerfield