Johnson Controls Inc(NYSE:JCI) is looking forward to spin off its remaining auto parts segments to make a separate public firm, completing its present transformation into a provider of batteries and climate-control devices for buildings.
The new company is expected to debut within one year. Shares in the new entity will be delivered to shareholders of Johnson Controls as part of the tax-free strategy. Johnson Controls reported in June that it was exploring sale of its auto units, which are collectively named as the automotive experience group.
CEO at Johnson Controls, Alex Molinaroli said that spinning off automotive experience removes the months of ambiguities and discussions that usually accompany business sales. Molinaroli further said that it make sense for the company, its customers and its partners in China, to do a spinoff.
Vice chairman and executive vice president at Johnson Controls, Bruce McDonald will head the new entity. Automotive experience posted revenue of $22 billion last year that represented more than half of the overall sales of the company. Majority of the revenue came from seating, where the company controls roughly one-third of an annual $60 billion worldwide seating market.
In spite of leading market share, low price margins of seating is broadly seen as a drag on the remaining company. JCI’s other units include heating and air conditioning equipment unit, and a power storage segment that manufactures replacement batteries for vehicles.
Johnson Controls’ margin on the seating segment was 6.5 percent in the quarter ended June 30, and it was 5.8 percent for the auto interiors unit, as compared to 10 percent for the buildings business and 15.9 percent for the power segment.
An analyst at William Blair & Co., Nicholas Heymann said that going forward, JCI will be a smaller company with much more proprietary value.
After joining the company as CEO back in 2013, Molinaroli sold JCI’s auto electronics segment and shifted the interiors segment into a mutual venture managed by Yanfeng. Few months back, CBRE Group acquired JCI’s workplace staffing and management divisions.
