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
Sponsored | Glass and Glazing | Oct 1, 2021
Specifying Responsibly to Save Birds’ Lives
Realizing sustainable, bird-friendly glass design
Sponsored | Glass and Glazing | Oct 1, 2021
Seizing the Daylight with BIPV Glass
Glass has always been an idea generator. Now, it’s also a clean energy generator.
Wood | May 14, 2021
What's next for mass timber design?
An architect who has worked on some of the nation's largest and most significant mass timber construction projects shares his thoughts on the latest design trends and innovations in mass timber.
3D Printing | Nov 27, 2020
The Fibonacci House: A test case of 3D construction printing
The Fibonacci House, which we have named after Leonardo Fibonacci, the medieval Italian mathematician, illustrates the potential of 3DCP and demonstrates how a complex design and challenging logistics can be solved through pragmatic planning and 3DCP technology.
Building Materials | Jul 5, 2020
A new report predicts significant demand growth for mass timber components
There should be plenty of wood, but production capacity needs to catch up.
Sponsored | Voice of the Brand | Jun 5, 2020
Practice Style Transcendence with Brick
Get inspired! Brick’s adaptability has made it the premier building material for centuries even as styles come and go. Nothing says “classic” like brick, but nothing says “innovative” like brick either. Check out some examples of how fired clay brick remains a major presence in the 21st Century designer’s palette.
Building Materials | Jun 4, 2020
The world’s first building made from carbon-fiber reinforced concrete starts construction in Germany
But greater use of these materials still faces obstacles.