(FROM THE WALL STREET JOURNAL 1/25/16)
By Dana Mattioli, Dana Cimilluca and Michael Siconolfi
Johnson Controls Inc. and Tyco International PLC are in advanced
talks to combine, according to people familiar with the matter, in
a deal that could value Tyco as high as $20 billion and signal that
companies are still willing to embark on large mergers despite
being shaken by recent market volatility.
The agreement, details of which could be announced as soon as
Monday, comes as both companies struggle to bolster their stock
prices.
While exact terms couldn't be learned, Johnson Controls has a
market value of about $23 billion, while Tyco's was about $13
billion as of Friday's close. A deal could value Tyco at between
$15 billion and $20 billion.
Johnson Controls, based in Milwaukee, produces auto seating and
heating, ventilation and air-conditioning equipment, and
replacement batteries for cars, among other things.
The company's shares have been hit in the past year amid
concerns about its growth, falling by more than 20%. Shares of Tyco
-- based in Ireland and with a U.S. headquarters in Princeton, N.J.
-- meanwhile, have fallen by more than 25% in the same period.
Should a deal come to fruition, it would signal that recent
waves of selling in markets for everything from oil to stocks
haven't derailed the historic mergers-and-acquisitions boom that
drove M&A activity to a record high of $4.7 trillion last year,
according to Dealogic.
Although takeover activity had gotten off to a relatively slow
start this year, the deal could signal that companies are still
willing to attempt the big takeovers that characterized last year's
surge.
It also is conceivable that it could be structured as a
so-called inversion, a type of transaction that has become popular
-- and controversial -- in recent years. Inversions typically take
the form of a U.S. company acquiring a foreign-based rival and
assuming its lower-tax domicile.
U.S.-based companies that have acquired other foreign-based Tyco
businesses in recent years have switched their corporate registries
to take advantage of the favorable tax status.
As part of an effort to boost Johnson Controls stock, Chief
Executive Alex Molinaroli has been pivoting the company away from
low-margin automotive markets to try to become a more profitable
"multi-industrial" company.
Mr. Molinaroli, who became CEO in 2013, has said he wouldn't
rule out acquisitions to expand the company's industrial reach. If
a deal is completed, it would be the largest in Johnson Controls'
more than 100-year history.
It is expected that Mr. Molinaroli would run the combined
company, according to one of the people familiar with the
matter.
Mr. Molinaroli has been planning to spin off the company's
automotive-seating business this fall, its largest unit and the
world's biggest competitor in that segment. It is unclear how a
Tyco pact would affect those plans.
When Edward Breen took over for former Tyco CEO L. Dennis
Kozlowski before Mr. Kozlowski was convicted in 2005 and later
served prison time for looting his employer -- he began
disassembling the serial acquirer's former empire.
In 2007, Mr. Breen broke up what was then a company with nearly
240,000 employees by spinning off medical-products company Covidien
PLC and electronics-component maker Tyco Electronics Ltd. Medtronic
Inc. last year bought Covidien for about $40 billion.
Today, Tyco focuses on fire, security and video surveillance for
commercial buildings through brands such as American Dynamics,
Chemguard and Sensormatic. Tyco has had slowing sales growth in
recent quarters and its sales and profit outlook for 2016 lagged
behind analysts' expectations.
Mr. Breen remains on Tyco's board of directors and serves as its
chairman. He has been busy on the M&A front of late, as
chemical giant DuPont Co., where he recently became CEO, in
December struck a landmark merger agreement with Dow Chemical Co.
-- a $120 billion transaction that would be followed by a three-way
split of the combined company.
It is unclear what the board composition of a combined Johnson
Controls-Tyco would be and whether Mr. Breen would have a role.
With Tyco's security and fire suppression business lines,
Johnson Controls would expand its equipment and services for
commercial buildings where developers and building managers often
look for suppliers with broad product lines. The company already
provides heating and air conditioning gear under the York brand and
climate-control systems.
Johnson Controls has been interested in acquisitions to
complement its businesses and replace lost revenue from the spin
off of the seating business. But analysts expected the company to
continue its recent practice of adding smaller acquisitions and
joint ventures.
The combination would come on the heels of Shire Plc's agreement
this month to buy drugmaker Baxalta Inc. for $32 billion -- though
that was publicly in the works for months. It also would follow a
series of comments from corporate and bank chief executives who
have indicated that despite market gyrations, the underpinnings of
a strong M&A market remain intact.
One way companies could continue agreeing to merge through the
volatility is by swapping shares if both stocks have fallen by
comparable amounts. Indeed, the Johnson Controls-Tyco deal would
involve at least a partial share swap, according to one of the
people.
---
Bob Tita contributed to this article.
(END) Dow Jones Newswires
January 25, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Johnson Controls (NYSE:JCI)
Historical Stock Chart
From Apr 2024 to May 2024
Johnson Controls (NYSE:JCI)
Historical Stock Chart
From May 2023 to May 2024