Johnson Controls and Tyco to merge, expected synergies $500m
Reading time 2 min Staff writer ▼ | January 25, 2016Johnson Controls will combine with Tyco to create the leader in building products and technology, integrated solutions and energy storage.
Merger Johnson Controls plc to stay in Cork, Ireland
Johnson Controls is expected to have $32 billion of revenue.
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, Ireland.
The primary operational headquarters in North America for the combined company will be in Milwaukee, where Johnson Controls has been based.
Under the terms of the agreement, which has been unanimously approved by both companies' boards, Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion.
Current Tyco shareholders will own approximately 44 percent of the equity of the combined company.
Pro forma for the transaction and separation of Adient, Johnson Controls is expected to have approximately $32 billion of revenue in fiscal year 2016 and $4.5 billion of EBITDA before synergies.
Adient is expected to have approximately $16.6 billion of revenue in fiscal year 2016 and $1.6 billion of EBITDA. In addition, Adient is expected to distribute between $2.5 to $3.5 billion to Johnson Controls in conjunction with the spin-off.
The new company expects to deliver at least $500 million in operational synergies over the first three years after closing.
These annual cost synergies are expected to be achieved by increasing efficiencies, eliminating redundancies, integrating the global branch networks, and leveraging the combined scale of an over $20 billion buildings business platform. In addition, the transaction is expected to create at least $150 million in annual tax synergies.
Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Tyco shareholders will own approximately 44 percent of the equity of the combined company.
The exchange ratio represents a 13 percent premium to Tyco shareholders based on 30-day volume-weighted average prices and an 11 percent premium based on share prices as of the close of market on January 22, 2016, assuming that each share of the combined company has a value equal to one Johnson Controls share.
Given their ownership of the combined company, both Tyco and Johnson Controls shareholders will participate in the substantial value-creation opportunities presented by $650 million in synergies, plus incremental upside from revenue growth acceleration.
Post-transaction, the combined company expects to maintain a strong investment grade credit rating and continue to pursue a balanced capital allocation program including a strong and growing dividend, consistent return of capital, and value-creating investment.
Both Johnson Controls and Tyco shareholders will receive shares of Adient (Johnson Controls Automotive Experience) which will be distributed after the merger. The Adient spin-off is expected to occur at the beginning of fiscal 2017. ■
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