Johnson Controls expects to reap at least $150 million in annual “tax synergies” as a result of its merging with Tyco International, a deal that will include Milwaukee-based Johnson Controls moving its headquarters to Tyco’s home base in Cork, Ireland.
The acquisition, valued at $20 billion, is the latest example of corporate “inversion,” where an American-based corporation seeks to significantly reduce its U.S. tax liability by moving its corporate domicile to the foreign location of the company with which it merges.
However, Johnson Controls intends to keep its operational headquarters in Wisconsin. Tyco’s U.S. headquarters is in Princeton, N.J.
The Johnson Controls-Tyco deal—a reverse takeover in which Tyco shareholders own 44% of the combined group, and Johnson shareholders own the rest and receive a $3.9 billion cash distribution—is similar to the pharma giant Pfizer’s $160 billion combining with Ireland-headquartered Allergan, a competitor, a few weeks ago.
Ireland’s corporate tax rate is under 20%, compared to a corporate tax rate in the U.S. that can be as much as 35%. Aside from its U.S. tax reduction, Johnson Controls expects this deal to reduce it operating costs by $500 million over the first three years.
According to news outlets including the Financial Times, the Tyco brand will disappear as a result of this deal. That brand was besmirched when, in 2005, its former high-flying CEO Dennis Kozlowski and its CFO were convicted of fraud and embezzling $150 million. A 2012 spinoff from the conglomerate broke the current Tyco International into three entities, the others being Pentair and ADT. Its businesses now focus on fire protection and security products.
USA Today reports that Johnson Controls still plans to spin off its remaining automotive business into an independent company called Adient next year. Johnson Controls will focus on its primary businesses, which include batteries, building products such as HVAC units under the York brand, and climate control systems.
The combined company, with annual revenue of $32 billion, will have six Johnson Controls board members and five representing Tyco. Alex Molinaroli will be chairman and CEO. George Oliver, Tyco’s current CEO, will be president and COO for 18 months, at which point Oliver will become CEO and Molinaroli executive chairman for one year. After that, Oliver assumes the chairmanship.
“The proposed combination of Johnson Controls and Tyco represents the next phase of our transformation to become a leading global multi-industrial company,” Molinaroli said in a statement.
This deal, which is expected to be completed by the end of the year, comes at a time when both companies have been struggling to bolster their stock prices, according to the Wall Street Journal. Johnson Controls’ share price has fallen by more than 20% from its recent high, while Tyco’s price has dropped by 25%. Johnson Controls shareholders will receive one share of the combined company or cash equal to $34.88 per share, the average of Johnson’s stock price over the past five trading days.
Related Stories
Wood | Apr 26, 2015
Building wood towers: How high is up for timber structures?
The recent push for larger and taller wood structures may seem like an architectural fad. But Building Teams around the world are starting to use more large-scale structural wood systems.
Sponsored | Building Team | Apr 24, 2015
New Products and Programs to Check Out at the 2015 AIA Convention
There is no bigger annual gathering of architects and design professionals in North America quite like the AIA National Convention.
Building Materials | Apr 15, 2015
Prices for construction materials see highest spike in two years
Results from the Bureau of Labor Statistics showed that prices for construction materials rose 0.8% in March, the largest monthly increase in more than two years.
Building Materials | Apr 14, 2015
French firm proposes sand and bacteria as building material in the Sahara
Deserts are already abundant with sand, so why not construct buildings out of it? This was the thought behind Flohara, a collection of shelters developed by Paris-based XTU Architects.
Sponsored | Windows and Doors | Apr 14, 2015
Energy Retrofits: Getting the Whole Picture on Energy Analysis
Modular Building | Mar 10, 2015
Must see: 57-story modular skyscraper was completed in 19 days
After erecting the mega prefab tower in Changsha, China, modular builder BSB stated, “three floors in a day is China’s new normal.”
Sponsored | Metals | Mar 10, 2015
Metal Building Systems: A Rising Star in the Market
A new report by the Metal Building Manufacturer's Association explains the entity's efforts in refining and extending metal building systems as a construction choice.
Building Materials | Feb 19, 2015
Prices for construction materials fall in January, following plummet of oil prices
The decline in oil and petroleum prices finally showed up in the produce price index data, according to ABC Chief Economist Anirban Basu.
Steel Buildings | Feb 10, 2015
Korean researchers discover 'super steel'
The new alloy makes steel as strong as titanium.
| Dec 29, 2014
From Ag waste to organic brick: Corn stalks reused to make construction materials [BD+C's 2014 Great Solutions Report]
Ecovative Design applies its cradle-to-cradle process to produce 10,000 organic bricks used to build a three-tower structure in Long Island City, N.Y. The demonstration project was named a 2014 Great Solution by the editors of Building Design+Construction.
