Milwaukee, Wisc.-based Johnson Controls, which will primarily make car batteries and heating and ventilation equipment once a pending spin-off goes through, has acquired Tyco, the fire protection and security products company that found a corporate domicile in Cork, Ireland, where tax rates are more favorable than they would be out of its U.S. headquarters in Princeton, N.J.
“Under the terms of the agreement, Johnson Controls will own about 56% of the merged company. The new firm will be renamed Johnson Controls PLC and maintain Tyco’s Irish legal domicile,” write Dana Mattioli, Dana Cimilluca Lisa Beilfuss for the Wall Street Journal at 7:38 this morning. “The companies said the merged entity would save at least $150 million a year on taxes and at least $500 million in costs over the first three years after the completion of the deal.”
In breaking news of the discussions yesterday, the WSJ pointed out that Johnson Controls CEO Alex Molinaroli, who has led the company since 2013, “has been pivoting the company away from low-margin automotive markets to try to become a more profitable ‘multi-industrial’ company.” He has planned to spin off its Automotive Experience automobile-seating business — “its largest unit and the world’s biggest competitor in that segment — into a new publicly traded company.”
Whether those plans will be altered is not clear, they wrote.
“Molinaroli is trying to refocus the company on its other product lines — namely batteries and energy management for buildings,” Automotive News’ David Sedgwick reported when the spin-off plans were announced last summer.
“If the deal is completed,” points outFortune’s Michal Addady before it was, “it would be Johnson’s largest in its more than century-long history” and the merged company is expected to be headed by its Molinaroli.
A deal between the Johnson Controls and Tyco “would provide the clearest indication yet that the recent market volatility has not derailed strategic mergers from advancing,” writes Reuters’ Greg Roumeliotis.
“Tyco’s fire protection expertise will complement Johnson Controls’ building solutions division,” write James Fontanella-Khan and Robert Wright for Financial Times. “The current Tyco International was created in 2012 after a spin-off that created Tyco, Pentair — specializing in heating, ventilation and air conditioning systems — and ADT, a specialist in building security.”
The company was broken up by turnaround expert Edward Breen, who took over after his predecessor, Dennis Kozlowski, was convicted of “looting nearly $100 million from Tyco, for which he served six and a half years in prison,” as the New York Times David A. Kaplan put in an a piece last year. (“I was piggy,” the once “imperious ‘Deal-a-Day Dennis,’ tells Kaplan. “But I’m not that person anymore.”)
Breen was named CEO and chairman of DuPont in November and is expected to be CEO of DowDupont, if and when that pending merger closes. He is still chairman of Tyco, however; George R. Oliver succeeded him as CEO in 2012.
Today’s transaction could be “one of the biggest so far this year, as market volatility has slowed the pace of mergers and acquisitions, leaving would-be buyers on the sidelines,” Leslie Picker wrote for the New York Times before it closed. “Tyco’s shares have slumped almost 30% over the last year, driving its market value down to less than $13 billion, while Johnson Controls’ stock has fallen to a market value of $23 billion.”
Tyco currently employs 57,000 people in nearly 50 countries, providing safety and security services for more than three million companies worldwide. The merger may result in a tax inversion for Johnson Controls, although it is not clear if that is part of the plans.
“By relocating the combined company to Ireland — which would theoretically be possible after a merger — the company would lower its tax expenses dramatically. Ireland's 12.5% tax rate is substantially lower than the tax rate Johnson Controls' is paying,” Jonathan Weber points out on Seeking Alpha.
Tyco moved its headquarters from Switzerland to Ireland in 2014 after the Swiss enacted laws that capped executive pay and tightened immigration laws, as Reuters reported at the time.