Johnson Controls International, known for its innovative building products, announced on Tuesday its decision to divest its residential and light commercial heating, ventilation, and air-conditioning (HVAC) business. This strategic move is part of the company's ongoing initiative to transform into a pure-play solutions provider predominantly focused on commercial buildings. The extensive HVAC segment, which has been a significant part of Johnson Controls' portfolio, has attracted the attention of German technology powerhouse Bosch.
The comprehensive agreement includes the North America Ducted business along with a 60/40 global residential joint venture with the reputable Japanese firm Hitachi, indicating a formidable shift in the HVAC landscape between these major players. The overall valuation of this transaction stands at a remarkable $8.1 billion, with Johnson Controls realizing approximately $6.7 billion from the deal. In fiscal 2023, the HVAC business demonstrated robust performance, generating approximately $4.5 billion in revenue.
This sector of the company is known for designing and manufacturing both ducted and ductless HVAC equipment and components, catering to a wide array of residential and light commercial applications around the globe. Chief Executive Officer George Oliver expressed optimism regarding the implications of this transaction, stating, "We are pleased to have reached this pivotal milestone, which accelerates our transformation and positions Johnson Controls as a simpler, higher-growth company." He further emphasized the company’s strategic placement for its next growth phase, aiming to deliver enhanced, long-term value to its shareholders. Despite the news, Johnson Controls' shares faced a slight downturn, decreasing by 1.3% in late-afternoon trading on the same day the announcement was made.
Nevertheless, the company anticipates that this deal will be accretive to profit margins when adjusted for equity income, with net cash proceeds expected to approach nearly $5 billion after the sale. As part of this transaction, Hitachi is set to retain certain ductless HVAC assets located in Shimizu, Japan, reflecting a careful consideration of key assets amidst the divesture.
Bosch, on the other hand, is keen on harnessing the opportunities within the HVAC market, with Robert Bosch Deputy Chairman Christian Fischer stating, "Together with our future colleagues in the acquired business, we want to seize the huge opportunities offered by the market for the further growth of this new unit." Johnson Controls plans to allocate the sale proceeds towards reducing its debt levels, contributing to its efforts to maintain an investment-grade credit rating, while the surplus is intended for shareholder returns.
The completion of this significant transaction is projected to occur in about 12 months, contingent upon regulatory approvals and other specified conditions. In their latest outlook, Johnson Controls indicated that it expects its fiscal third-quarter adjusted earnings to slightly surpass the previously communicated range of $1.05 to $1.10 per share, with results scheduled to be announced on July 31, signaling confidence amid transitional phases. As of the most recent data, Johnson Controls' stock was priced at $69.32, representing a change of -0.88, reflecting a percent change of -1.25, indicating market responsiveness to the announcement and ongoing corporate strategies..