Strategy

Johnson Controls Mulling Auto Parts Spinoff

Breakup of industrial parts maker would continue trend toward leanness in corporate America.
Matthew HellerJune 10, 2015

Industrial parts maker Johnson Controls said Wednesday it was considering a spinoff of its $22 billion automotive seating and interiors business, a move that would continue the trend of large corporate breakups to create leaner organizations.

The automotive division has long been one of the world’s largest automotive suppliers and accounted for nearly 51% of Johnson Controls’ $43 billion in revenue last year. One analyst told the Detroit Free Press it could sell for $20 billion to $40 billion, which would make it one of the largest deals of the year.

Johnson Controls CEO Alex Molinaroli said in a news release that the company was exploring a spinoff as part of “our strategy of proactive portfolio management to drive focus on strategic product-oriented businesses where we can be a global market leader, drive more profitable growth and deliver maximum long-term value for our customers and shareholders.”

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The New York Times reported that the automotive business has shown signs of slowing growth. In the company’s most recent quarter, its revenue rose just 1%, to $5.2 billion, excluding the effect of the strengthening dollar.

A spinoff would allow Johnson Controls to focus on other divisions like its building air-conditioning operations, the Times said, noting that “Stalwarts of the corporate world, from General Electric to Hewlett-Packard, have [recently] spun off often slower growing divisions into separate publicly traded companies.”

Theodore O’Neill, senior analyst at Ascendiant Capital Markets, said he was confident Johnson Controls will find a suitor. “It’s definitely going to happen. There’s no question it’s going to happen,” he told the Free Press. “The market’s totally ripe for this because the car industry is doing OK.”

Molinaroli said that while the company’s automotive seating business is performing well, the capital investment necessary to keep it competitive has been increasing. “What we saw is that we were … not allowing it strategically to make some investments that would be required for it to compete in the long term,” he told analysts in a conference call.

Johnson Controls’ stock climbed 3.9% to close at $53.57 Wednesday.

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