JCI announces potential sale of battery business

Johnson Controls International is considering selling off the battery side of its business, the firm said on March 12. It said a review process on the issue has already started.

This isn’t the first time that JCI has hinted at the issue — there were rumours about the issue more than five years ago.

But, given the acquisition of the Ireland-based fire and security firm Tyco in 2016, and effective relocation to Ireland, shifts in the multinational’s scope of product lines were always a given.

CEO George Oliver said the announcement “reflects our strategic priority to strengthen and invest in our global market-leading positions in HVAC (heat, ventilation and air conditioning), fire and security solutions and integrated building management systems”.

He said the firm was “exploring strategic alternatives for its Power Solutions business”.

Speaking to BESB, Fraser Engerman, director of global media relations at JCI, would not rule out a potential sale. He said the nature of the battery business meant it required significant capital investment, and that there were “changing industry dynamics”.

Clearly, changing industry dynamics is a challenge being faced, and addressed, by the entire industry.

The company said that investment banking and advisory firm Centerview Partners had been hired to assist the company in its review process. This would involve completing an assessment of ‘strategic alternatives’ over the next few months.

Analysts at Baird, an asset management and private equity firm also based in JCI’s home base in Milwaukee, in the US state of Wisconsin, said the firm’s recent shift towards its buildings business, for example its acquisition of Tyco, was a sign that investors were considering the possibility of selling or spinning off the power solutions side of the firm.

“This seems to be a natural progression, particularly given a new CEO,” the firm’s analysts said. (Former Tyco president and COO George Oliver replaced Alex Molinaroli as Johnson CEO in September 2017, six months ahead of schedule.)

The analysts believed a sale of the battery business was unlikely in favour of a spin-off of some kind.

“Tax leakage has historically been the most significant financial impediment to a potential sale, but management notes that recent tax reform has lowered the tax rate and resulting leakage,” one analyst said.

“For it to be value accretive to JCI, we suspect the transaction will approximate or exceed $20 billion pre-tax, limiting the number of strategic buyers considering limited synergies, in our view.”

The firm said other options could include the formation of a joint venture, although that would not accomplish the strategic objective of being exclusively focused on buildings.

“If there is a transaction, we view a spin-off as more likely outcome than a sale,” one analyst said.

JCI said no further public statements would be made until a specific determination had been made.