Johnson and Tyco Shareholders Approved Merger

Johnson Controls (JCI) has a market cap of $28.7 billion. It rose by 0.43% to close at $44.32 per share on August 17, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -1.1%, 0.94%, and 14.6%, respectively, on the same day. JCI is trading 1.7% below its 20-day moving average, 0.26% above its 50-day moving average, and 9.9% above its 200-day moving average.

The Vanguard Large-Cap ETF (VV) invests 0.15% of its holdings in Johnson Controls. The ETF tracks a market-cap-weighted index that covers 85% of the market capitalization of the US equity market. The YTD price movement of VV was 8.0% on August 17.

The market caps of Johnson Controls’ competitors are as follows:

• Honeywell International (HON): $88.3 billion
• Raytheon Company (RTN): $41.9 billion
• Lear Corporation (LEA): $8.2 billion

Johnson Controls and Tyco shareholders have approved the merger of these companies. The transaction is expected to close on September 2, 2016.

Johnson Controls reported, “In a final count of the voting results, 97% of votes cast at a special meeting voted in favor of the transaction, representing over 81% of all outstanding Johnson Controls shares as of the record date.” The company added, “the merger will create a global industrial leader uniquely positioned in building and energy markets with $30 billion in annual revenue by bringing together two leading businesses with best-in-class product, technology and services to deliver greater value to customers, shareholders and employees.”

Johnson Controls reported 3Q16 net sales of $9.5 billion, a fall of 1.0% compared to net sales of $9.6 billion in 3Q15. Sales from its Building Efficiency and Power Solutions segments rose by 33.0% and 3.1%, respectively. Sales from its Automotive Experience segment fell by 19.3% in 3Q16 compared to 3Q15. The company’s gross profit margin rose by 12.9%, and its income from continuing operations before income taxes fell by 11.0% in 3Q16 compared to 3Q15.

Its net income and EPS (earnings per share) rose to $383.0 million and $0.59, respectively, in 3Q16 compared to $178.0 million and $0.27, respectively, in 3Q15.

JCI’s cash and cash equivalents fell by 21.8%, and its inventories rose by 25.0% in 3Q16 compared to 4Q15. Its current ratio and long-term debt-to-equity ratio fell to 0.92x and 0.54x, respectively, in 3Q16 compared to 1.0x and 0.55x, respectively, in 4Q15.

Johnson Controls has made the following projections:

• It expects the EPS to be in the range of $3.95 to $3.98 per share for fiscal 2016, which reflects strong operational performance.
• It expects EPS in the range of $1.17 to $1.20 for fiscal 4Q16.

This guidance doesn’t include the impact of the Tyco merger and transaction, integration and separation costs, year-end pension and postretirement mark-to-market adjustments, or other non-recurring items.

In the next part, we’ll take a look at Ingredion.