Johnson Controls (NYSE: JCI) will buy York International (NYSE: YRK) for $2.4 billion in cash, in a deal announced on August 24.
The acquisition will enhance Johnson Controls’ reach into the commercial and residential HVAC markets, and offset a decline in its automotive controls business.
Milwaukee, WI-based JCI will own $11 billion of the $200 billion domestic building controls industry.
JCI will pay $56.50 per share for York.
“Strategically, we’ve formed an $11 billion leader in this $200 billion global market,” says John Kennedy, president of the Controls Group for Johnson Controls.
“We’ve instantaneously created the largest global services provider to the market, and a single source of integrated systems, products, and services. We now address 100% of the categories in the HVAC market. It’s really a game-changer for both York and Johnson Controls.”
Total value of the deal is $3.2 billion. The buy will be finalized by December 2005.
Johnson Controls is a worldwide supplier of installed control systems, technical services and building management controls, including controls for lighting, security, fire safety, and refrigeration.
“We see strength and steady improvement in the light and commercial markets, and the large tonnage equipment sector is getting better,” says York president and CEO, C. David Myers.
JCI’s global workforce totals 31,000. York employs 25,000 people worldwide, with 26 U.S. manufacturing facilities in nine states.
“We believe the customers we serve will benefit strongly from the integrated opportunity we can provide on a global basis,” says York president and CEO, C. David Myers.
“Our organizations will complement each other very well from the standpoint of serving the customer, [applying] excellent technologies, and sustainability within our organizations. We have a joint goal of service growth, mid-market focus, and international growth,” Myers says.
Building the branches
Alex Molinaroli, vice president and general manager, Americas, for Johnson’s Controls Group, says negotiations between the two companies included discussions of ways to improve branch capabilities in systems and service organizations.
“There’s been much activity around getting our cost-competitive systems business in place in order to serve our mechanical contracting customers and the mid-market more effectively, with new products and new processes,” Molinaroli says.
“We’ve also instituted a program to build a local service organization, and build out those capabilities organically, and through some mechanical services acquisitions. That strategy, combined with the acquisition of York, will help build out both the systems strategy, where customers are looking for a single source, our local capabilities, and our service capabilities.”
Effect on equipment
Kennedy and Myers say Johnson and York will combine resources to equipment that will be easier for HVAC contractors to install, and for consumers to operate.
“I see a co-engineering effort … between the two organizations,” says Kennedy.
“As we look at co-development of equipment, we will certainly take a life-cycle approach. “Johnson Controls has always had an ‘end-to-end’ process view of how to make sure the equipment we provide is easy to install, use and operate.”
“This provides an opportunity for us to be much more efficient, by putting controls into the equipment right from the start, and deliver much more benefit to the customer because of that capability,” says Myers.
“In addition, we can optimize equipment performance more directly related to building automation and control, to offer better performance to the customer. I see a lot of collaboration in how we jointly deliver a better solution more cost effectively.”