Johnson Controls and Tyco to Merge

Under the terms of the agreement, which has been unanimously approved by both companies' Boards of Directors, Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Current Tyco shareholders will own approximately 44 percent of the equity of the combined company.  

"The proposed combination of Johnson Controls and Tyco represents the next phase of our transformation to become a leading global multi-industrial company," stated Alex Molinaroli, chairman and chief executive officer, Johnson Controls. "With its world-class fire and security businesses, Tyco aligns with and enhances the Johnson Controls buildings platform and further positions all of our businesses for global growth.  Through this transaction, we will also expand our ability to further invest globally, develop new innovative solutions for customers and return capital to shareholders."

"The combination of Tyco and Johnson Controls is a highly strategic, value-enhancing step that brings together the unique strengths of two great companies to deliver best-in-class building technologies and services to customers around the world," said George R. Oliver, chief executive officer, Tyco. "We believe this transaction will allow us to better capture opportunities created by increased connectivity in homes, buildings and cities. Joining forces with Johnson Controlspairs our leading established businesses with robust innovation pipelines and extensive global footprints to deliver greater value to customers, shareholders and employees of both companies."

Under the terms of the proposed transaction, the businesses of Johnson Controls and Tyco will be combined under Tyco International plc, which will be renamed "Johnson Controls plc." The companies expect that shares of the combined company will be listed on the New York Stock Exchange and trade under the "JCI" ticker.  Upon the closing of the transaction, the combined company is expected to maintain Tyco's Irish legal domicile and global headquarters in Cork, Ireland. The primary operational headquarters in North America for the combined company will be in Milwaukee, where Johnson Controlshas been based.

Strategic Rationale

The combined company brings together best-in-class product, technology and service capabilities across controls, fire, security, HVAC, power solutions and energy storage, to serve various end-markets including large institutions, commercial buildings, retail, industrial, small business and residential.  The combination of the Tyco and Johnson Controls buildings platforms creates immediate opportunities for near-term growth through cross-selling, complementary branch and channel networks, and expanded global reach for established businesses.

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. 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. In addition, the combined company will have one of the largest energy storage platforms with capabilities including traditional lead acid as well as advanced lithium ion battery technology serving the global energy storage market.

Johnson Controls is in the midst of a strategic transformation to become a top-quartile multi-industrial company with leadership in attractive spaces connected to core growth platforms in buildings and energy storage. This focus has resulted in significant portfolio changes over the past few years including the divestiture of its Automotive Electronics and Interiors and Global Workplace Solutions businesses, as well as the acquisition of Air Distribution Technologies and the formation of Johnson Controls - Hitachi joint venture.  The company announced in July 2015 that it is planning to spin off Adient at the beginning of fiscal year 2017.

Tyco has transformed from a diversified holding company to a streamlined operating company with a focused and leading portfolio in fire and security that will complement Johnson Controls' buildings platform.  Tyco combines best-in-class products with a world-class installation and service capability delivered across a global network of branches.  The company's core strengths include security and fire systems integration, commercial security monitoring, as well as fire, security and life-safety products.

Value Creation For Both Companies' Shareholders

Pro forma for the transaction and separation of Adient, Johnson Controls is expected to have approximately $32 billion of revenue in fiscal year 2016 and $4.5 billion of EBITDA before synergies. Adient is expected to have approximately $16.6 billion of revenue in fiscal year 2016 and $1.6 billion of EBITDA. In addition, Adient is expected to distribute between $2.5 to $3.5 billion to Johnson Controls in conjunction with the spin-off.

The new company expects to deliver at least $500 million in operational synergies over the first three years after closing. These annual cost synergies are expected to be achieved 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.  

Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Tyco shareholders will own approximately 44 percent of the equity of the combined company. The exchange ratio represents a 13 percent premium to Tyco shareholders based on 30-day volume-weighted average prices and an 11 percent 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. Given their ownership of the combined company, both Tyco and Johnson Controls shareholders will participate in the substantial value-creation opportunities presented by $650 million in synergies, plus incremental upside from revenue growth acceleration.

Post-transaction, the combined company expects to maintain a strong investment grade credit rating and continue to pursue a balanced capital allocation program including a strong and growing dividend, consistent return of capital, and value-creating investment. 

Both Johnson Controls and Tyco shareholders will receive shares of Adient (Johnson Controls Automotive Experience) which will be distributed after the merger. The Adient spin-off is expected to occur at the beginning of fiscal 2017.

Transaction Details

Immediately prior to the merger, Tyco will effect a reverse stock split so that Tyco shareholders will receive a fixed exchange ratio of 0.9550 shares for each of their existing Tyco shares.  

Johnson Controls shareholders may elect to receive either one share of the combined company for each of their Johnson Controls shares or cash equal to $34.88 per share, which represents Johnson Controls' five-day volume-weighted average share price.  Elections by Johnson Controls shareholders are subject to proration such that an aggregate of approximately $3.9 billion cash is paid in the merger.

The combination will be tax-free to Tyco shareholders, and taxable toJohnson Controls shareholders.

Tyco has secured a committed $4.0 billion bank facility to finance the cash consideration of the transaction. 

The completion of the transaction, which is expected by the end of fiscal year 2016, is subject to customary closing conditions, including regulatory approvals and approval by both Johnson Controls and Tyco shareholders.

Governance and Leadership

Following closing of the transaction, the board of directors of the combined company is expected to have 11 directors, consisting of six directors from Johnson Controls and five directors from Tyco.  Alex Molinaroli will be the chairman and chief executive officer (CEO) of the combined company.  George Oliver will serve as president and chief operating officer and serve as a director on the new board, with responsibility for the operating businesses and leading the integration. 

Mr. Molinaroli will serve as chairman and CEO for a term of 18 months after the closing.  At that time, Mr. Oliver will become CEO and Mr. Molinaroli will become executive chair for one year, after which Mr. Oliver will become chairman and CEO.

Centerview Partners is serving as Johnson Controls' lead financial advisor. Barclays is serving as financial advisor for Johnson Controls. Wachtell, Lipton, Rosen & Katz and A&L Goodbody are acting as its legal advisors.

Lazard is serving as Tyco's lead financial advisor.  Citi is providing the committed financing for the transaction and Goldman Sachs is serving as financial advisor for Tyco. Simpson Thacher & Bartlett and Arthur Cox are acting as its legal advisors.

Fiscal Q1 Earnings Update:

As part of today's announcement, both companies provided preliminary 2016 first fiscal quarter earnings results.  Johnson Controls said its adjusted earnings per share for the first fiscal quarter is expected to be $0.82, compared with guidance of $0.80 - $0.83. Tyco's earnings per share before special items is expected to be $0.42 versus guidance of $0.40.  

Johnson Controls will report earnings on Jan. 28, 2016.  Tyco will report on Jan. 29, 2016.

The two companies will hold a call for financial analysts on Monday, Jan. 25, 2016 at 8:45 a.m. Eastern time. The call will be webcast and available at www.jci.com and www.tyco.com, and also can be accessed in the following ways:

Live via webcast – through the Investor Relations section of Tyco's website at  http://investors.tyco.com, or directly at  http://edge.media-server.com/m/p/b6mwu2kx Live via telephone (for "listen-only" participants and those who would like to ask a question) – by dialing 800-857-9797 (in the United States) or 517-308-9029 (outside the United States), passcode "12516", Replay via telephone – by dialing 800-839-9316 (in the United States) or 402-998-1696 (outside the United States), passcode 6497, from 10:45 a.m. (ET) on January 25, 2016, until 11:59 p.m. (ET) on February 25, 2016, and Replay via webcast – through the "Presentations & Webcasts" link on the Investor Relations section of Tyco's website:http://investors.tyco.com.

About Johnson Controls

Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 130,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and seating components and systems for automobiles. Our commitment to sustainability dates back to our roots in 1885, with the invention of the first electric room thermostat. Through our growth strategies and by increasing market share we are committed to delivering value to shareholders and making our customers successful. In 2015, Corporate Responsibility Magazine recognized Johnson Controls as the #14 company in its annual "100 Best Corporate Citizens" list. For additional information, please visit http://www.johnsoncontrols.com. Follow Johnson Controls Investor Relations on Twitter at www.twitter.com/JCI_IR.

About Tyco

Tyco (NYSE: TYC) is the world's largest pure-play fire protection and security company. Tyco provides more than three million customers around the globe with the latest fire protection and security products and services. Tyco has over 57,000 employees in more than 900 locations across 50 countries serving various end markets, including commercial, institutional, governmental, retail, industrial, energy, residential and small business. For more information, visit www.tyco.com.