Johnson Controls and Tyco Merge in Tax-Inversion Deal

Johnson Controls Inc. and Tyco International plc announced that they will merge in a deal in which Johnson Controls shareholders will own about 56 percent of the combined company and Tyco shareholders will own 44 percent.  In addition, Johnson Controls shareholders will receive approximately $3.9 billion in cash consideration.  While both companies list a whole range of reasons for doing the deal including $500 million in expected operating synergies, the expected tax savings of $150M in annual tax savings will likely be the most controversial aspect of the deal as Johnson Controls will move their headquarters to Cork, Ireland as part of a corporate inversion deal that enables US companies to acquire foreign-domiciled companies and change their headquarters in order to lower their tax rate.

Johnson Controls is a diversified provider of building efficiency solutions, automotive batteries, and seating components.  Tyco is the world's largest pure-play fire protection and security company.  Johnson Controls' automotive seating business (Adient) that has approximately $17 billion in revenue and $1.6 billion of EBITDA is expected to be spun-off in the beginning of fiscal year 2017.  The remaining combined business is projected to have $32 billion in revenue and EBITDA (before synergies) of approximately $4.5 billion.  

The deal values the Tyco business at around 1.6x enterprise value to trailing revenue and 11.6x trailing EBITDA (before synergies).