Under the definitive agreement unanimously approved by the boards of both companies, York shareholders will receive $56.50 for each outstanding share of York common stock. The $3.2 billion price includes about $800 million of York debt to be assumed by Johnson Controls.
York, with estimated sales of about $5 billion, will become part of the nearly $6 billion Controls Group of Johnson Controls. This combination is expected to increase Johnson Controls' growth rate in the $200 billion industry for global building environments.
The companies anticipate the transaction will close in December 2005, subject to customary closing conditions that include regulatory approvals and York shareholder approval.
Johnson Controls projects about $28 billion in consolidated sales for fiscal 2005 from continuing operations, including its automotive seating/interiors and battery businesses. The company reported sales of $25.4 billion for fiscal 2004, of which 53% was from North America, 39% from Europe and 8% from the rest of the world. Controls, including control systems and services for HVAC, lighting, security and fire management for nonresidential buildings, facility management and consulting services, accounted for 21% of 2004 sales. Automotive seating and interior systems represented 70% of its 2004 sales and automotive batteries, 9%, Johnson Controls reported. Its net income in 2004 was $766.8 million.
The acquisition will improve the balance of its consolidated sales and earnings among its three businesses, Johnson Controls said. On a pro forma basis assuming the acquisition was completed on Sept. 30, 2004, and using analyst 2005 consensus estimates for York, Johnson Controls projected consolidated sales for 2005 would be comprised of 32% controls/HVAC/R, 9% battery and 59% automotive seating/interiors.
York, which designs, manufactures, sells and services HVAC systems for commercial and residential markets; gas-compression equipment for industrial processing; industrial and commercial refrigeration equipment; and compressors for residential and commercial air-conditioning, reported sales of $4.5 billion for fiscal 2004, with 49% coming from the Americas, 36% from Europe and 15% from Asia. York has achieved a compound annual sales growth rate of 11% since becoming an independent company in 1986. Its net income in 2004 was $81.6 million.
This acquisition will enhance Johnson Controls' global market reach, as the businesses collectively serve customers from more than 500 sales and service offices and reach more than 125 countries. The two companies are market leaders in North America and Europe, and have complementary operations in the faster growing regions of Asia (especially China), Central Europe, the Middle East and Latin America.
Johnson Controls said it expects to achieve more than $275 million of annual synergies by 2008, primarily related to cost efficiencies and a lower effective tax rate.
“By joining with York, a market leader with a strong growth outlook, Johnson Controls is staking out a strategic leadership position in the global building environments industry that will offer significant growth potential and synergies with our controls business,” John M. Barth, chairman/CEO of Johnson Controls, said in a statement. Combining the two organizations will create the largest building services force in the world, strongly positioning Johnson Controls to capture an increased share of the fragmented $130 billion global services market for commercial buildings, he added.
C. David Myers, president/CEO of York, said the two companies share “similar cultures of innovation, critical values and customer service.”