New rules aim to curb inversions Johnson Controls deal may be affected

As they prepare to merge, Johnson Controls Inc. and Tyco International are reviewing new federal rules designed to clamp down on corporate inversions that enable companies to relocate overseas to save on their taxes, the companies said Tuesday.

The new rules aim to deter corporations from making tax-saving shifts under a loophole that President Barack Obama said Congress should close “for good.”

Obama called it “one of the most insidious tax loopholes out there” because it shortchanges the country. He said less tax revenue means the government can’t spend fully on schools, transportation networks and other things to keep the economy strong. He said the practice also hurts middle-class Americans because “that lost revenue has to be made up somewhere.”

He commented one day after the Treasury Department announced a series of steps to make inversions less financially appealing.

In a regulatory filing, Tyco and Johnson Controls said they “are conducting a review” of the steps announced by the Treasury Department “and are not making any statements regarding the possible impact of these announced actions prior to their completion of this re-

ages that Johnson Controls and Tyco executives would be eligible for, if the merger is completed.

What the filing does detail is the back-and-forth of negotiations between the companies since last year, when Johnson Controls, the document says, was evaluating a variety of strategic alternatives for all three of its businesses — buildings, car seats and batteries for cars and buildings.

The merger, announced in January, is slated to be completed this fall, if all regulatory and shareholder approvals are gained by then. The deal is also facing scrutiny because of its headquarters move to Ireland, which the companies have said would produce $150 million in tax savings.

Direct negotiations between the two companies began with a phone call from Tyco Chief Executive George Oliver to Johnson Controls CEO Alex Molinaroli on Oct. 7.

While Oliver at the time proposed a combination of Tyco and Johnson’s building business only, Johnson said it was only willing to discuss a combination involving the entire company.

Under Johnson Controls’ proposal, shareholders of both Johnson Controls and Tyco would receive proceeds from the previously announced spinoff of the Johnson Controls car seating business.

More than three months of negotiations followed, focusing on key issues including how much value Tyco shareholders would receive from the business combination and how long Molinaroli would remain in charge as CEO of the combined company.

The companies eventually agreed that Molinaroli would be chairman and chief executive for 18 months, with Oliver then succeeding him as CEO. Molinaroli would remain executive chairman for another year.

During the negotiations, Johnson Controls also proposed that the combined company be given the name “Johnson Controls” and that it “would retain Tyco’s global headquarters in Ireland but maintain its U.S. operational headquarters in Milwaukee.”

The initial proposal called for Tyco shareholders to receive a premium of 15% to 17.5% above the price at which Johnson Controls shares had been trading. When the deal was finalized in January, the premium was set at about 14%, but Johnson Controls shareholders were also given the option to accept a combination of cash and Tyco stock. The cash payment from Tyco to Johnson shareholders was capped at $3.9 billion.