Johnson Controls agrees to sell battery business for $13.2 billion

Brookfield Business Partners to purchase Power Solutions

Johnson Controls International plc on Tuesday announced plans to sell its automotive battery business to Brookfield Business Partners L.P., a Toronto-based private equity firm, for $13.2 billion.

The deal is expected to close by June 30. Caisse de dépôt et placement du Québec or CDPQ, an institutional investor that manages funds for pension and insurance plans, is partnering with Brookfield in the deal.

“We are excited to grow our business with the acquisition of Power Solutions, a global market leader which generates consistent cash flows and profitability,” said Cyrus Madon, Brookfield Business Partners chief executive officer. “We look forward to partnering with the management team to continue growing this world-class business and build on its track record of innovation.”

In announcing the deal, Brookfield Business Partners highlighted Power Solutions’ strong competitive position, ability to withstand economic cycles, long-standing customer relationships and reputation for safety, quality and performance.

The announcement ends several months of speculation about what Johnson Controls would do with its Power Solutions segment, which generated $8 billion in revenue in fiscal 2018 and $1.68 billion in earnings before interest, taxes, depreciation and amortization. The company announced it was initiating a strategic review of the business earlier this year. A decision was expected by the time Johnson Controls reported earnings last week, but the Wall Street Journal reported the deal hit a snag.

It is not immediately clear what the sale will mean for Power Solutions employees in the Milwaukee area. The business is headquartered on the same campus as JCI’s corporate facilities and there are around 500 employees in the region. Power Solutions is also deeply involved in battery research at the University of Wisconsin-Milwaukee and UW-Madison.

Fraser Engerman, a Johnson Controls spokesman, said the separation process will take time and the Power Solutions business expects to keep its headquarters in Milwaukee.

Johnson Controls expects to reduce its annual corporate expenses by around $50 million within 12 months of the deal closing. The company had $416 million in corporate expenses in fiscal 2018.

The deal will give Johnson Controls approximately $11.4 billion in net proceeds after tax and transaction expenses. The company, which is operated from Glendale but based in Ireland for tax purposes, plans to use up to $3.5 billion to pay down debt. The remaining proceeds would be available to return to shareholders with details to be announced later.

Selling Power Solutions also leaves Johnson Controls as a business entirely focused on building solutions and technologies, a portfolio shift that has taken place over several years. In 2015, the company announced plans to spin-off its automotive seating business into a company now known as Adient. A few months later JCI merged with Tyco International, expanding its building offerings in the process.

“With this transaction, Johnson Controls becomes a pure-play building technologies and solutions providers that is better positioned to lead the integration and evolution of the connected building and to capture strategic opportunities in the HVAC industry,” said George Oliver, Johnson Controls chairman and chief executive officer.

Oliver said that while a portion of the proceeds remaining after paying off debt would be returned to shareholders, he also wants Johnson Controls to have options if acquisition opportunities emerge.

“There is a lot of speculation on industry consolidation, but as I said, we remain focused on execution,” he told analysts, later adding that JCI would look to capitalize on “whatever consolidation might happen.”

 

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Arthur Thomas
Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He spent also 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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