Monday, February 15, 2016

Johnson Controls, Tyco to Merge in Inversion Deal
Merger will place combined companies’ headquarters in Ireland, Tyco’s home


I have mixed feelings about these moves. With the context of our last posting on redefining capitalism (;postID=2016076399125449012;onPublishedMenu=allposts;onClosedMenu=allposts;postNum=0;src=postname),
 if these mergers in fact better enable the combined companies to : “transform ideas into products and services that solve (customer) problems” then they will work. If it is just to cut costs or improve tax rates, I believe they will fail in the long run. Being very familiar with DuPont, I believe the new companies can truly add value per the concepts of the last posting IF and only if they innovate more deeply and richly in each of the three new, more focused businesses than before -- per the last posting: “ providing them (investors) with a return that is competitive compared with the alternatives is a boundary condition for a successful business; it is not the purpose of a business”

Johnson Controls Inc. and Tyco International PLC agreed to merge in a $14 billion deal that creates a new giant provider of commercial-building systems and reflects a growing push by some executives and shareholders toward companies that are bigger but more focused. 
The deal, announced Monday, would combine Johnson Controls’ business selling heating and air-conditioning equipment for skyscrapers, schools, hospitals and other structures with Tyco’s lines of security and fire-suppression gear into a company with more than $30 billion a year in sales…. 
….. Those changes reflect, in part, a broader dissatisfaction among shareholders—especially some activist investors—with the concept of sprawling conglomerates that have tentacles in widely arrayed industries. At the same time, executives still see value in combining businesses in the same or similar industries to give them greater market clout.Similar dynamics have been evident in some other big recent deals. In November, PfizerInc. and Allergan PLC agreed to combine in a $155 billion deal, then promptly announced that it was considering splitting the final company. Last month, Dow Chemical Co. and DuPont Co. agreed to combine into a chemical giant worth more than $120 billion before splitting up into three companies focused on three separate sectors…. 
…. (AS LONG AS THIS IS THE REAL REASON) The combination would allow Johnson Controls to offer building owners and managers a more complete suite of equipment along with data-collection services to analyze and manage power consumption and predict maintenance requirements (AND NOT)… As a result of Johnson Controls’ inversion, the company’s effective tax rate will be 18% or 19%, said people familiar with tax structure. Tyco paid 12% of its profit in taxes over the past three years, versus an average 29% by Johnson Controls, according to S&P Capital IQ. Johnson Controls said its effective tax rate before certain items was around 19% over the past two years ended Sept. 30.

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