Though its headquarters for tax purposes will move to Ireland, analysts say the Johnson Controls, Inc. merger might be good news for Wisconsin — or will at least soften the blow of any job reductions.
Johnson Controls, which is based in Glendale, announced yesterday it would move its headquarters for tax purposes to Cork, Ireland through a merger with Tyco International, pending shareholder and regulatory approval. But the deal, which is expected to close in the fall, would keep the combined company’s operational headquarters in the Milwaukee area.
The deal, which got slammed by Dem presidential candidates Hillary Clinton and Bernie Sanders, is estimated to save the combined company $150 million each year in taxes. It will also bring $500 million over three years in savings from “synergies,” which are largely expected to come from reducing unnecessary positions.
Though they noted it’s too early to tell, analysts were split on what those reductions might look like.
“It sure looks like job reductions for Wisconsin,” said Ascendiant Capital senior research analyst Theodore O’Neill.
But Efraim Levy, senior equity analyst for S&P Capital, said since Johnson Control is the larger party of the two and the operational headquarters will remain in Wisconsin, the move could “bode well” for the state.
And Brian Jacobsen, a Menomonee Falls-based chief portfolio strategist for Wells Fargo Fund Management, said the merger “could be very good for Milwaukee.”
“The headquarters matters for federal taxes, but the jobs are where the operations are,” Jacobsen said. “Considering the scale of operations in the Milwaukee area, we could see more jobs created here as they take advantage of that scale.”
Milwaukee Mayor Tom Barrett, meanwhile, told Biz Times he’s “optimistic” that the Milwaukee area will be able to “preserve jobs here.”
In a conference call with investors, Johnson Controls CEO Alex Molinaroli said the company is “strongly committed to investing in our business in the U.S.” He also said the decision was largely based off bringing together two companies that are complementary.
The combined company, called Johnson Controls plc, will bring Johnson Controls’ building solutions for energy and operational efficiencies together with Tyco’s fire protection and security services. The new company will have $32 billion in annual revenues, Molinaroli said.
“We really believe we can achieve more together than either company could on a standalone basis,” he said.
The planned spinoff of Johnson Controls’ automotive seating business will happen after the merger, Molinaroli said.
David Whiston, an equity strategist at Morningstar, wrote in a note to investors the deal “makes a lot of sense” and fits with Molinaroli’s vision to turn Johnson Controls into a “leading multi-industrial company.”
“JCI can combine its commercial building HVAC and systems expertise and add on Tyco’s fire and security offerings, making the company a bigger one-stop shop and controlling more of the buildings systems in an ‘Internet of Things’ age,” he wrote. “We see the deal as very complementary from a product perspective as well as geographically since Tyco is strong in Europe, unlike JCI’s buildings group, while JCI’s building group is better in Asia than Tyco.”
Whiston wrote the combined company’s tax rate should see Tyco’s tax rate of roughly 16 percent, compared to Johnson Controls’ rate of 19 percent. The slight decline suggests tax structures did not “seem like the main reason to do this inversion deal.”
Still, Vermont senator and Dem presidential candidate Bernie Sanders blasted the deal “would be a disaster for American taxpayers,” while former Secretary of State Hillary Clinton said the merger would “leave American taxpayers holding the bag while corporations juice more revenues and profits.”
U.S. Sen. Ron Johnson, meanwhile, said the deal was just another example of why Congress needs to reform the federal tax code.
The Wisconsin Republican said in a news release that he’s “disappointed, but not surprised” that Johnson Controls is moving its headquarters, noting Ireland’s top corporate tax rate of 12.5 percent compared to the U.S. top rate of 35 percent.
“As one of my Democratic colleagues said during a hearing on exactly this topic, ‘It’s just math,’” Johnson said. “America needs to get its math right by scrapping our current tax code and replacing it with a very simple and globally competitive one.”
Tyco’s stock price closed Monday up 3.56 points, or 11.64 percent, to $34.15 per share. Johnson Controls’ stock, meanwhile, was down 1.39 points, or 3.9 percent, to $34.21 per share.
— By Polo Rocha,
WisBusiness.com
