Coverage: Johnson Controls, Tyco to merge

Johnson Controls confirmed its merger with Tyco International in a $3.9 billion deal that will see the Milwaukee-based company move its headquarters to Ireland.

Phil Serafino of Bloomberg had the day’s news:

Johnson Controls Inc. agreed to merge with Tyco International Plc, combining the companies’ building-control businesses. The deal would move Johnson Controls to Ireland, where corporate tax rates are lower.

Shareholders of Johnson Controls will own about 56 percent of the combined company and receive aggregate cash consideration of about $3.9 billion, the companies said in a statement Monday. The companies expect the deal to close by the end of September. Johnson Controls shareholders may choose one share of the combined company or $34.88 per share in cash.

Johnson Controls is continuing with its plan to spin off its automotive-seating operations, slated by year-end. A consummated deal would complete the transition of Johnson Controls from a diversified manufacturer of auto parts, batteries and building controls into two more focused companies. A merger also would end of one of the last vestiges of Tyco, the onetime conglomerate that divided into multiple companies after former Chief Executive Officer Dennis Kozlowski was forced out in 2002 and later went to prison.

Milwaukee-based Johnson Controls has been trying to reduce its reliance on the auto-parts industry, which accounted for about 54 percent of its fiscal 2015 sales. Johnson Controls’ Chairman and CEO Alex Molinaroli will have the same roles at the combined company. Johnson Controls has a stock-market capitalization of about $23 billion.

Greg Roumeliotis of Reuters explained what each company brings to the table in terms of their product offerings:

The deal would come as Milwaukee, Wisconsin-based Johnson Controls was preparing to spin off its automotive seating and interiors business, to focus on its building efficiency and automotive battery operations.

Johnson Controls’ building efficiency segment had sales of $2.9 billion last quarter.

Based in Cork, Ireland, Tyco provides more than 3 million customers globally with fire protection and security products and services.

Tyco was broken up into three companies after turnaround expert Edward Breen took the helm from former Chief Executive Officer Dennis Kozlowski, who was convicted in 2005 of grand larceny, securities fraud and other charges.

Under Breen, Tyco spun off its electronics division, now called TE Connectivity, and the healthcare company now named Covidien PLC in 2007. He greatly expanded Tyco’s security business with the $1.9 billion acquisition of Broadview Security in 2010.

In 2012, Tyco was broken up into three pieces. The flow-control business, which sells valves and controls for the energy market, merged with Pentair Inc, while the company’s commercial fire and security businesses combined into “New Tyco” and traded under Tyco’s symbol. The third piece consisted of the ADT North American residential security business.

Dana Mattioli, Dana Cimilluca and Lisa Beilfuss of The Wall Street Journal explained how this merger is another so-called inversion deal:

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.

So-called inversion deals, in which U.S.-based companies acquire foreign-based businesses in order to take advantage of the more favorable tax status, have popular—and controversial—in recent years.

Under the deal, Johnson Controls shareholders will receive one share of the combined company or cash equal to $34.88 a share, a weighted average of the price of Johnson Controls’ shares over the past five trading days. Representatives didn’t immediately respond to requests for comment on the deal’s overall value.

Shares of Tyco jumped 10% to $33.79 in premarket trading while Johnson Controls shares rose 5.1%.

The deal, which The Wall Street Journal reported was imminent on Sunday, comes as both companies struggle to bolster their stock prices.

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.