One of the biggest security manufacturers and integrators (Tyco) and one of the biggest building management providers (JCI) are combining. The two companies together will do over $40 billion in revenue. The combined corporate name will be "Johnson Controls" but the legal domicile (for tax savings) will be Tyco's HQ in Ireland.
In this note, we breakdown their revenue, 'synergies' and a potential challenge from UTC.
JCI *****
**** ** *** **** * ********** of ******* ******** ***** **** * **** of ******** ** *** ******** ******** ******.
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******* ***********, *** ** ***** * 'tax *********' **** ****** ***** ***** domicile ** ****'* ** ** *******, which ******** ******** ******** ** ******** ** profits ********.
Tyco / *** *******
**** **** ~$** ******* ****** ******* (relatively ****) ******* ***** ******* ~$* billion ***** ******* *********** (*.*.,**** ********** ********), ~$* ******* **** ** ***** Integration, *** ~$*.* ******* ******* ***** (including**** ******** ********).
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**** / *** **** ***** *****-******* benefits *** ******** ******* ******* *** companies, ******:
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*** ******** ********* *** ********** ******* everything ** * ******** ***-**-***:
** ********, ******, ** ***** ******* all ***** ******** ***-**-*** **** ** challenging *** **** *** *****.
**** ** *** / ****'* ******** of *** ******** *********, ****** *** products:
Exacq ******?
**** *** ** **** ****** ** completed, ***** **** *** **** ** owned ** **** *** ********** *** JCI *** ********** ** ****, ****** even ******* ******** ***** ******* ******** between ***** **** *********** *** ******* security *******.
JCI ******* *** ** ** ****** ***
***'* *** ** ***** ** ** phased *** *** ******** ** ****'* CEO **** *** **** *** *****:
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*** ********** ****** ** ****** ***** proposed *********** ** ********, *** ** 'efficiencies' / **** *********. **** *** and **** **** ******** ** **** mid ** ***** ***** ******** ******. Combining **** *** ******** '*********' ********* will ****** **** **** ***** *** is ****** ** ** * ******* and *********** ******* *** *** **** few ***** ** ** ** ********.
UTC *********?
*******, *** ******* ****** **** ***** not ** * **** ****:
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*** ***** ******* ******* **** ********* Tyco *********** ** **** ** *** tax ********* ********.
Update *** **** - **** ****
Update *** **** - ******** ***
**** ********** ******** ******* ********
I've been hearing rumors of JCI getting out of the security business for the last several months, so this isn't too shocking.
Both JCI and Tyco are tired old-guard companies, this whole merger is a footnote in the current security industry trends more than anything. In another 5 years this new company will probably merge with some other remnant of a previous era and repeat the cycle again.
I agree this is more financial maneuvering than industry disruption, though it may very well be worthwhile for them to make such a move, given the cost / tax savings possible.
The merger will give both companies complementary skills and customers and will succeed. I think the trend will be to more and more systems that are large, communicate and are secure and this positions the new JCI with the right mix.
As cameras become a commodity, how they communicate with the mother ship is the only differentiation that will work.
If you put yourself in the shoes of those making the decision - it's the right one.
P.S.: Selling tens of billions of product is significant.
...This...is more than year old news. Most of the impact from this merger has already been assessed and felt.
This may be a little off-topic, but can anyone explain exactly how the tax inversion that results from moving to Ireland actually provides increased profits from the point of view of US-based owners (major stockholders) of the resulting merged company?
Is there a way the money saved by lower corporate taxes in Ireland can get back into the US without additional taxation, or is this money simply never repatriated?
I do not think the money needs to come back to the US for the shareholders to profit. Shareholders profit primarily from stock price increases, not repatriated funds.
Btw, some color on the tax savings:
"For the last twelve months the company's corporate tax rate was 29 percent -- Johnson Controls paid more than twice the amount the company would pay if taxed in Ireland. The tax savings would be substantial -- when using flat pre tax income of $2.2 billion and a corporate tax rate of 12.5 percent, we get to net income of $1.9 billion, which is about $350 million higher than the company's reported net income."
Loaded question:
Once this is finalized, would you consider TyControls to be a American company or an Irish one?
I noticed that JCI yields 'Security' strength to Tyco, which is the only sane assessment, but I wonder what that means for JCI's security/access platform P2000?
Notice the graphic (presumably stolen from the merger preso) has no PACS logos. Neither Software House or the P2000 are mentioned. Yet it's cool to have 2 and a half camera vendors on the slide.
If UTC buys Tyco I will cry. Although if UTC can bring up Tyco instead of Tyco dragging UTC down it would be good. I think anyone who buys Tyco is in for a very rough ride and a rude awakening as to how they have alienated customers over the years.
That was one analyst speculating about UTC countering. I don't know if it will happen or not, but from having sat in the Tyco / JCI webinar, they are pretty happy right now to go through the deal as is. But if UTC made a much better counter, who knows...
I work for a UTC integrator, I wasn't around when they bought out GE's security stuff, but I feel like they brought that down, not up.
Both US Democratic Presidential candidates have criticized this deal because it allows JCI to avoid taxes.
Hmmmmm, I wonder who could do something to change the idiotic tax policies so companies aren't basically forced to leave the USA.....
Would you agree that this merger will create a company that is similar to Seimens in size and offerings. I have always viewed Seimens as a building systems manufacturer that plays around in the security industry.
As an independent, I like the idea of two nationals becoming one, but we are also very heavily invested into Software House and Exacq, so I have my worries too.
"Would you agree that this merger will create a company that is similar to Seimens in size and offerings."
At least in North America, a combined JCI / Tyco security company would be far far larger than Siemens.
I thought the idea that building controls/automation and physical security were beginning to merge (or that it was even a good idea to begin with) had died long ago.
