US firm Johnson Controls to cut tax bill with $16bn Tyco takeover
Car battery and heating equipment maker accused of ‘stranding honest taxpayers’
Johnson Controls, a US maker of car batteries and heating and ventilation equipment, has agreed to buy Irish-based peer Tyco International in a $16.5 billion (€15.23 billion) deal that will lower its tax bill.
By redomiciling to Tyco’s headquarters in Cork, Johnson Controls would become the latest major US company to carry out a so-called tax-inversion, after drug giant Pfizer structured such a deal with Irish peer Allergan last November.
The merger will combine Johnson Controls’ commercial buildings business with Tyco’s fire security offerings, accelerating Johnson Controls’ transformation following its decision to spin off its automotive parts unit.
Milwaukee-based Johnson Controls, which has a market value of $23 billion, makes heating and ventilation systems and car batteries, while Cork-based Tyco, valued at $13 billion, specialises in fire- protection systems.
The merger will create savings of at least $500 million in the first three years, the companies said. They expect to save an additional $150 million a year through tax synergies.
While the tax benefits are not as profound as is the case of Pfizer’s deal with Allergan – Johnson Controls and Tyco have effective tax rates of close to 20 per cent and 18 per cent, respectively – the news was enough to stir controversy among politicians in a US presidential election year.
“US businesses are continuing to defect to Ireland, stranding honest taxpayers. Congress needs to act now,” said Senator Ron Wyden, a Democrat from Oregon.
“The move would be consistent with Johnson Controls’ strategy of transforming from an auto supplier into a multi- industry leader,” UBS analyst Colin Langan said in a client note.
Johnson Controls’ shares were down 2.4 per cent at $34.76 in afternoon trading in New York, while Tyco’s were up 9.8 per cent at $33.55.
Tyco was ahead of many big US industrial companies in seeking tax relief by moving its legal residence offshore. The company moved its headquarters to Bermuda from Exeter, New Hampshire, in 2007, then to Switzerland in 2009, and to Cork in 2014.
Tyco said in 2014 its move to Cork was tax-neutral and occurred because of Swiss laws capping executive pay and tighter immigration rules.
Shareholders in Johnson will own about 56 per cent of the combined company, with Tyco shareholders owning the remainder.