Johnson Controls and Tyco have entered into a “definitive merger agreement” under which Johnson Controls, the global multi-industrial company, will combine with Tyco (the global fire and security solutions provider) to create “the leader in building products and technology, integrated solutions and energy storage”.
Under the terms of the agreement, which has been unanimously approved by both companies’ Boards of Directors and was announced today, Johnson Controls’ shareholders will own approximately 56% of the equity of the combined company and receive aggregate cash considerations of approximately $3.9 billion.
For their part, current Tyco shareholders will own approximately 44% of the equity of the combined company.
“The proposed combination of Johnson Controls and Tyco represents the next phase of our transformation towards becoming a leading global multi-industrial company,” stated Alex Molinaroli, chairman and CEO 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’ll also expand our ability to further invest on the global stage, develop new and innovative solutions for customers and return capital to our shareholders.”
George Oliver, CEO of Tyco, responded: “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 all around the world.”
Oliver continued: “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 and established businesses with robust innovation pipelines and extensive global footprints to deliver greater value to customers, shareholders and, indeed, the employees of both companies.”
Under the terms of the proposed transaction, the businesses of Johnson Controls and Tyco will be combined under Tyco International plc, which will be renamed ‘Johnson Controls plc’. The companies expect that shares of the combined company will be listed on the New York Stock Exchange and trade under the ‘JCI’ ticker.
Upon the closing of the transaction, the combined company is expected to maintain Tyco’s Irish legal domicile and global headquarters in Cork. The primary operational headquarters in North America for the combined company will be in Milwaukee, where Johnson Controls has been based.
Strategic rationale behind the deal
The combined company brings together Best in Class product, technology and service capabilities across controls, fire, security, HVAC, power solutions and energy storage to serve various end user markets including large institutions, commercial buildings, the retail landscape and the industrial sector.
Bringing together the Tyco and Johnson Controls platforms creates immediate opportunities for near-term growth through cross-selling, complementary branch and channel networks and expanded global reach for what are both very well-established businesses.
The new company will also benefit by combining innovation capabilities and pipelines involving new products, advanced solutions for smart buildings and cities, value-added services driven by advanced data and analytics and connectivity between buildings and energy storage through infrastructure integration. As a result, the new company will be better able to partner with its customers and help improve their overall performance and operations, enhancing the experience for their own customers in areas such as comfort, safety and accessibility.
Johnson Controls is in the midst of a strategic transformation to become a top-quartile multi-industrial company with leadership in attractive spaces connected to core growth platforms in buildings and energy storage. This focus has resulted in significant portfolio changes over the past few years, including the divestiture of its Automotive Electronics and Interiors and Global Workplace Solutions businesses, as well as the acquisition of Air Distribution Technologies and the formation of the Johnson Controls-Hitachi joint venture.
The company announced in July last year that it’s planning to ‘spin off’ Adient at the beginning of fiscal year 2017.
For its part, Tyco has transformed from being a diversified holding company to a streamlined operating business with a focused portfolio in fire and security that will complement Johnson Controls’ buildings platform. Tyco combines Best in Class products with an installation and service capability that’s delivered across a global network of branches. The company’s core strengths include security and fire systems integration and commercial security monitoring as well as bespoke fire, security and life-safety products.
Governance and leadership
Following closure of the transaction, the Board of Directors of the combined company is expected to have eleven directors, consisting of six from Johnson Controls and five directors courtesy of Tyco.
Alex Molinaroli will be the chairman and CEO of the combined company. George Oliver will serve as president and COO as well as a director on the new Board, with direct responsibility for the operating businesses and leading the integration process.
Molinaroli will serve as chairman and CEO for a term of 18 months after the closing of the merger deal. At that time, Oliver will become CEO and Molinaroli executive chairman for one year, after which time Oliver is to become chairman and CEO.
Centerview Partners is serving as Johnson Controls’ lead financial advisor, with Barclays acting as financial advisor for Johnson Controls. Wachtell, Lipton, Rosen & Katz and A&L Goodbody are acting as its legal advisors.
Lazard is serving as Tyco’s lead financial advisor. Citi is providing the committed financing for the transaction, and Goldman Sachs is the financial advisor for Tyco.
Simpson Thacher & Bartlett and Arthur Cox are acting as its legal advisors.