Johnson Controls-Tyco Merger to Create One of World’s Largest Battery Storage Companies

Johnson Controls (JCI) has emerged as a leading player in the microgrid industry and markets, expanding into the nascent, rapidly evolving cleantech market segment off the back of its strengths in building and facilities energy management. JCI took another significant step towards realizing a strategic transformation that is likely to see its microgrid and energy efficiency market presence expand with the January 25 announcement of a merger with fire protection and security systems specialist Tyco.

Tyco’s fire and security products and services portfolio complements JCI’s, particularly with regard to global markets for smart building and smart city products and services, which JCI views as strategic growth drivers, management explained. That includes creating one of the world’s largest energy storage businesses, one that includes lead acid and advanced lithium-ion battery technology.

¨The new company will also benefit by combining innovation capabilities and pipelines involving new products, advanced solutions for smart buildings and cities, value-added services driven by advanced data and analytics and connectivity between buildings and energy storage through infrastructure integration,¨ management explained in a press release. ¨As a result, the new company will be able to better partner with its customers to help improve their overall performance and operations, enhancing the experience for their own customers in areas such as comfort, safety and accessibility.

Expanding Microgrid Market Presence

JCI meter readingJohnson Controls has been actively pursuing opportunities in the microgrid market. Its presence and activities in the microgrid and building nanogrid market segments is likely to get a boost as a result of Tyco merger. JCI’s energy control and management technology lies at the core of the campus-wide microgrid at the University of California, San Diego (UCSD), a pioneer in the development of highly efficient clean energy microgrids.

In addition, JCI, working in conjunction with Hitachi and the DOE’s National Renewable Energy Laboratory (NREL), has conducted more than 50 microgrid feasibility studies around the world. That includes performing a NY Prize microgrid feasibility study for the South Shore Long Island community of East Hampton.

Under the terms of the merger agreement, Tyco and JCI will be combined under Tyco International plc, which will be renamed “Johnson Controls plc.” Management expects that shares of the combined company will be listed on the New York Stock Exchange and trade under the “JCI” ticker.

JCI will move its global headquarters and legal domicile to Cork, Ireland, where Tyco is located. The combined company’s North America operational headquarters will be in Milwaukee, where JCI has been based.

The Tyco merger coincides with JCI’s ongoing divestiture of its Automotive Electronics and Interiors and Global Workplace Solutions business lines, another step towards realizing its strategic restructuring, management noted. JCI has been the largest supplier of auto parts in the U.S.

Organizational Synergies

JCI EV chargers

Pro forma of the merger, Johnson Controls is expected to generate approximately $32 billion of revenue in fiscal year 2016 and $4.5 billion of EBITDA. That excludes realization of synergies as a result of the merger, as well as the sale of JCI’s Adient automotive business line.

Management expects the merger will yield at least $500 million in operational ¨synergies¨ over the first three years after the merger’s closing. These will be realized 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,¨ according to management.

Overall, management expects organizational synergies and revenue growth will yield some $650 million, benefiting both Tyco and JCI shareholders.

JCI shareholders will own approximately 56% of the combined company’s equityand receive cash consideration totaling approximately $3.9 billion. Tyco shareholders will own approximately 44 percent of the equity of the combined company, which represents a 13% premium to Tyco shareholders based on 30-day volume-weighted average prices and an 11% premium based on share prices as of the close of market on Jan. 22, 2016, assuming that each share of the combined company has a value equal to one Johnson Controls share.

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