Johnson Controls, a U.S. maker of car batteries and heating and ventilation equipment, announce today that it would merge with Ireland-based fire protection and security systems maker Tyco International. The merger will place the headquarters of the combined company in Ireland.
The merger will combine Johnson Controls’ commercial buildings business with Tyco’s fire security offerings, accelerating Johnson Controls’ transformation following its decision to spin off its automotive parts unit. Milwaukee-based Johnson Controls, has a market value $23 billion, while Ireland-based Tyco is valued at $13 billion. Company representatives didn’t immediately respond to requests for comment on the deal’s overall value. The businesses of Johnson Controls and Tyco will be combined and the new firm will be renamed Johnson Controls, Plc.
By re-domiciling to Tyco’s headquarters in low-tax Ireland, Johnson Controls would become the latest major U.S. company to carry out a so-called “tax-inversion” deal with a foreign-based business. “Tax inversion” deals, in which U.S.-based companies acquire foreign-based businesses to take advantage of the more favorable tax status, have become popular in recent years. The companies that stated that the merged corporation 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.
Under the proposed terms of the agreement, Johnson Controls will own about 56% of the merged company, with Tyco shareholders owning the remainder. This is thanks in part to a cash consideration of about $3.9 billion that Johnson Controls shareholders will receive. Keeping Johnson Controls’ shareholders ownership of the combined company below 60 percent was important for the company because the latest U.S. Treasury rules, in a bid to limit tax inversions, placed some restrictions on deals that cross this threshold.
Johnson Controls’ shares were up 5.3 percent at $37.40 in premarket trading on Monday. Tyco’s shares were up 10 percent at $33.65.