Johnson Controls, a leader in building management and heating/ventilation equipment, has announced it will combine with global fire and security provider Tyco International in yet another deal that gathered the attention of the industry.
In yet another deal that gathered the attention of the industry, Johnson Controls, a leader in building management and heating/ventilation equipment, has announced it will combine with global fire and security provider Tyco International with the goal of offering more integrated solutions combining security and building automation.
According to the agreement, Johnson Controls shareholders will own about 56 percent of the new company and receive aggregate cash consideration of approximately US$3.9 billion. Tyco shareholders will own the remaining 44 percent. The transaction is expected to complete by the end of fiscal year 2016 and is subject to customary closing conditions, including regulatory approvals and approval by both Johnson Controls and Tyco shareholders.
A major ramification of the deal is the disappearance of the Tyco brand, for decades a household name in the security industry. Under the terms of the transaction, the businesses of Johnson Controls and Tyco will be combined under Tyco International, which will then be renamed "Johnson Controls.”
The new company will initially be headed by Johnson Controls Chief Executive Alex Molinaroli and continue to trade on the New York Stock Exchange. After 18 months, Tyco's George Oliver will become CEO and Molinaroli will become executive chair for one year, after which Oliver will become chairman and CEO.
Under the deal, the combined company is expected to remain in Tyco's Irish legal domicile and global headquarters in Cork, Ireland. The primary operational headquarters in North America for the combined company will be in Milwaukee, where Johnson Controls has been based. Due to the inversion nature of the deal, it has drawn criticism that the move was for the new company to pay less tax.
Highly strategic move
But that aside, the deal is highly strategic, aiming to create synergy between two companies whose strengths lie in different fields. Johnson Controls, which sold its federal security integration business to Versar in October last year and has also announced plans to spin off its automotive parts unit, will move a step closer to its goal of offering total security-building automation solutions.
"Johnson Controls has not kept up with the pace of innovation in fire and security,” said Jim McHale, CEO of Memoori Business Intelligence. “They remain strongest in building management systems and HVAC controls, which have much more in common with their other divisions such as batteries and distributed energy storage.”
Tyco, on the other hand, is a leading security conglomerate with well-known brands such as Software House, exacq, Kantech, and DSC that cover video surveillance, access control, and intrusion alarms fields. Yet the company has seen its share of ups and downs. In 2007, it split into three units: Tyco Healthcare, Tyco Electronics, and Tyco International. Then in 2012, Tyco International split again into three, spinning off ADT in the U.S. and a flow control company, Pentair. For a company that seeks to gain further strength and competitiveness in the market, merging with Johnson Controls seems to be the right fit.
In the end, given the increasing ties between building automation and security, companies from both industries combine to leverage shared resources and create synergy. The latest deal between Johnson Controls and Tyco International is one example. And with the trend showing no sign of stoppage, we may very well see similar deals to come in the near future.