Johnson Controls International (JCI) will sell its Power Solutions business due to its capital-intensive nature to Brookfield Business Partners L.P. in a cash transaction valued at $13.2 billion.
“Our power solutions business has built tremendous scale over the years, with leading market positions across the globe and a high margin aftermarket model. The business is more capital-intensive compared to our buildings business,” said George Oliver chairman and CEO of Johnson Controls, in an investor briefing call earlier this week.
The estimated $11.4 billion in net cash proceeds collected after tax and transaction-related expenses will be used to pay down debt $3.0 billion to $3.5 billion, return capital to shareholders and support the company’s building business, said Oliver.
Brookfield is a spin-off of Brookfield Asset Management, a Canadian firm that has $285 billion under management and invests in real estate, infrastructure, renewable power and private equity.
The impact from the sale of its power business will reduce earnings per share (EPS) by 15% to 20% to a guidance of $2.40 to $2.50 from pre-sale estimated EPS of $2.90 to $3.05 in 2019.
The transaction, expected to close June 30, will make the company a pure-play building technologies and solutions provider ready to lead the innovation in the connected buildings, HVAC, Fire and Security and Integrated building management market, Oliver said.
A critical component of the company’s long-term growth strategy is China which continues to remain one of the fastest growing regions and will represent 40% of the global HVAC market by 2020.
A more focused portfolio will allow the company to capitalize on secular growth trends and deliver strong financial performance through free cash flow conversion, lower capital intensity and continued margin expansion, said Oliver.
The transaction is structured to be a clean-break with modest $100 million or less in outstanding liabilities from environmental sites and pensions remaining which the company says are not significant to transaction value.
While the company remains tight-lipped about M&A opportunities at this time stating that its primary focus will remain on execution and gaining market share in its leading positions in HVAC and BMS organically, JCI will continue to make sure that it is well positioned to capitalize on industry consolidation Oliver said.
Shares of JCI are down 10.3% year-to-date compared with The S&P 500 index which is up 1.8 %.