A group of Johnson Controls Inc. shareholders have filed a class action suit against executives and board members of the Glendale-based multi-industrial firm over its planned merger with Tyco International plc.
Arlene Gumm is the lead plaintiff in the case, and Johnson Controls chief executive officer Alex Molinaroli is the lead defendant.
The complaint, filed in federal court in Milwaukee last week, alleges the Johnson Controls board members have breached their fiduciary duties by reincorporating in Ireland to reduce its taxes, in what is known as a corporate tax inversion.
It says JCI is reducing its U.S. income tax at the expense of the company’s minority taxpaying shareholders and to the harm of all the company’s public shareholders. The transaction will be taxable to JCI shareholders, who will have to pay capital gains taxes once the transaction closes. Public shareholders’ equity interest also will be diluted.
A similar lawsuit brought by Chana Laufer in Milwaukee County Circuit Court in May, which also questioned the decision to merge with Tyco instead of another company that was in negotiations with JCI, was settled recently.
Shareholders of both companies voted last week to approve the approximately $16 billion merger of Johnson Controls and Tyco, which is scheduled to take place Sept. 2.
But they largely opposed, on a non-binding advisory vote, the plan to reward Johnson Controls executives with “golden parachute” compensation if they are terminated following the merger with Tyco International PLC. JCI chief executive officer Alex Molinaroli would be in line for $74.2 million in total compensation, $43.4 million of which would be in cash, if he were terminated after the merger. Molinaroli already is receiving a $20 million payout in cash and stock as a result of the merger under his change of control agreement.
