Johnson Controls to explore sale of battery business
Glendale company employs about 15,000
Johnson Controls International plc said Monday it is exploring the sale or spinoff of its Power Solutions automotive battery business.
The company is the world’s largest manufacturer of automotive batteries, producing about 152 million batteries a year. The company’s batteries are in roughly one of out of every three automobiles on the road today.
The Power Solutions business, based in Glendale, generated $7.3 billion in revenue in the fiscal year ended Sept. 30 and employs about 15,000 people, including about 500 in Glendale.
The battery business had $1.6 billion in earnings before interest, taxes, depreciation and amortization.
Johnson Controls had total revenue of $30.2 billion in its 2017 fiscal year and employs 120,000 people worldwide.
Wall Street analysts have speculated that Johnson Controls would sell its automotive battery business after its merger with Tyco International.
The business doesn’t directly tie into Johnson Controls’ core business of heating, cooling, fire protection, and security products and services. But the battery business is considered exceptionally strong and well run.
“At first blush, the auto battery business doesn’t sound that interesting, but they really are the best out there,” said Brian Bernard, an analyst with Morningstar Research Services LLC.
The business also is less cyclical than many of its competitors because of its strength in the socalled after-market for replacement batteries.
“They are dominant in that,” Bernard said.
Johnson Control also sells lithium-ion batteries for electric cars but does not have as strong a presence in that market segment.
“They are not positioned for that right now,” Bernard said.
He estimates that the battery business would sell for at least $17 billion.
Johnson Controls has a market value of about $35.7 billion.
In a research note to investors, Timothy Wojs and Joshua Chan,
analysts at Milwaukee-based Robert W. Baird & Co., said that they viewed a spinoff of the battery business as more likely than a sale.
They estimate that the battery business would need to sell for $20 billion or more to increase Johnson Controls’ value and that the price would limit the number of potential buyers.
In a statement, George Oliver, chairman and chief executive officer of Johnson Controls, said Monday’s announcement “reflects our strategic priority to strengthen and invest in our global market-leading positions in HVAC (heating, ventilation, and air conditioning), fire and security solutions and integrated Building Management Systems, which operate in attractive vertical markets with strong growth prospects.”
Johnson Controls said it expects to complete its assessment of strategic alternatives for its battery business over the next several months.
The company said it does not intend to make any further public statements until a decision has been made.
Johnson Controls spun off its automotive seating business, which is now known as Adient plc, in October 2016.
Adient’s businesses include Johnson Controls’ former automotive interiors business, which now is part of a joint venture with Yanfeng Automotive Trim Systems.
Johnson Control’s stock has significantly lagged the market since its merger with Tyco.
But Bernard said that the company has been on track in realizing the projected cost savings from the merger.
The company realized $300 million in cost savings in its last fiscal year and projects $200 million in savings this fiscal year.
“You are seeing their (profit) margins expand,” Bernard said.
He expects that to continue and considers the stock a good investment for patient investors.
“Once it is all said and done, this is going to be a much more profitable company than it was,” Bernard said.