Decision on Johnson Controls battery business expected by November

Company still considering sale, spin-off or retaining business

Last updated on May 14th, 2019 at 05:29 am

Johnson Controls International plc plans to make a decision on the potential sale of its Power Solutions business by the time it announces fourth quarter results in early November, executives said Tuesday.

The company, which is based in Ireland for tax purposes but operated from a headquarters in Glendale, announced a strategic review of its Power Solutions segment earlier this year. The business provides lead-acid automotive batteries and advanced battery technologies.

The Power Solutions business is based in Glendale and has about 500 employees in the area. It has also been deeply involved in research into new battery technology at the University of Wisconsin-Milwaukee.

Bloomberg reported last week that JCI has narrowed its auction to four bidders after beginning with at least eight. The final suitors include Apollo Global Management LLC, Brookfield Asset Management, Clayton Dubilier & Rice and a consortium of Onex Corp. and the Canada Pension Plan Investment Board, according to the report.

George Oliver, Johnson Controls chairman and chief executive officer, said the company could still retain the business but is also analyzing a possible spin-off along with the potential sale.

“We will communicate more details when a final determination is made,” he said, adding he expects a decision by the time JCI reports fourth quarter earnings.

The tax implications of a potential spin-off are complicated by JCI’s 2016 corporate inversion as part of the merger of Johnson Controls and Tyco International. The combined company shifted its headquarters to Ireland to save on taxes, but that decision prohibits a tax-free spin-off from the company for five years.

Brian Stief, Johnson Controls executive vice president and chief financial officer, said while a straightforward tax-free spin-off could not happen until 2021, there are other options the company could use, although he cautioned those would be more complex and could come with additional tax risk.

Oliver said he is pleased with the progress that has been made in the review when asked if the fact JCI is still considering a spin-off suggests the company is disappointed in the potential proceeds from a sale.

“I wouldn’t read anything into the spin versus sale,” Stief said.

Oliver said the business has continued to perform well during the review and the company has not seen any significant departure of employees.

“We’ve minimized the distractions that this has caused within the business,” he said.

The Power Solutions segment increased organic revenue by 10 percent in the third quarter to $1.84 billion with higher volumes and favorable pricing and technology mix. Aftermarket and OEM shipments were both up 6 percent. The segment’s adjusted EBITA increased 2 percent to $310 million.

Overall, JCI reported net income of $723 million, up from $555 million during the same period last year. Earnings improved from 59 to 78 cents per diluted share for the quarter.

Net sales increased from $7.68 billion to $8.12 billion, including an organic increase of 6 percent.

JCI has emphasized the addition of additional sales staff this year and Oliver said the company made 375 new hires in the quarter. For the current fiscal year the sales staff is up a net of 775 compared to an expected increase of 500 to 600. Oliver said the company expects to end the year with a net of 900 new hires.

“We have seen a significant increase in the productivity of our new and existing sales teams,” Oliver said.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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