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
| May 21, 2012
$61,000 awarded to students in Cleveland’s ACE Mentor Program
Mayor Frank G. Jackson gives keynote address at scholarship event for 80 Cleveland Metropolitan School District students involved in the ACE Mentor Program, which provides guidance and assistance for students interested in careers in the integrated construction industry.
| May 21, 2012
Wayne, Pa.'s Radnor Middle School wins national green award
Radnor Middle School among the most sustainable schools in the U.S.
| May 21, 2012
Winchester High School receives NuRoof system
Metal Roof Consultants attended a school board meeting and presented a sloped metal retrofit roof as an alternative to tearing off the existing roof and replacing it with another flat roof.
| May 17, 2012
EMerge Alliance forms new Campus Microgrid Technical Standards Committee
Intel leading the charge to connect multiple DC microgrids throughout commercial buildings; others invited to join effort.
| May 16, 2012
AEG releases 3D video of L.A.'s Farmers Field
The Los Angeles Convention Center footage depicts the new convention center hall spaces, including a new lobby above Pico Boulevard, pre-function space, and what will be the largest multi-purpose ballroom in Los Angeles.
| May 16, 2012
Balfour Beatty Construction taps Kiger as VP of operations
Kiger will manage current relationships and pursue other strategic clients, including select healthcare clients and strategic project pursuits in the Central Tennessee region.
| May 15, 2012
One World Trade Center goes to new height of sustainability
One of the biggest challenges in developing this concrete mixture was meeting the Port Authority of New York/New Jersey’s strict requirement for the replacement of cement.
| May 15, 2012
Don’t be insulated from green building
Examining the roles of insulation and manufacturing in sustainability’s growth.
| May 15, 2012
National Tradesmen Day set for Sept. 21
IRWIN Tools invites the nation to honor "The Real Working Hands that Build America and Keep it Running Strong".
| May 15, 2012
SAGE Electrochromics to become wholly owned subsidiary of Saint-Gobain
This deal will help SAGE expand into international markets, develop new products and complete construction of the company’s new, state-of-the-art manufacturing facility in Faribault, Minn.
