US car battery and building efficiency specialist, Johnson Controls has agreed to merge with Cork-based fire prevention and security products company Tyco International and move its headquarters to Ireland in a tax-saving ‘inversion’ deal.
The transaction will combine the companies’ building-control businesses and move Johnson Controls to Ireland to avail of the lower corporate tax rate.
Johnson shareholders will own about 56% of the combined company and receive aggregate cash consideration of about $3.9bn (€3.6bn), the companies said in a statement yesterday.
The companies estimate the merger would deliver at least $150m of tax savings each year and $500m in costs over the initial three years.
Tyco, which reduced its workforce in Cork by laying off hundreds of staff in 2008, made a dramatic return by relocating its global headquarters to the city in late 2014.
The fire prevention specialists now employs hundreds of staff at its Mahon facility which it is due to leave in the coming weeks as it relocates to One Albert Quay in the city centre to accommodate its continued expansion.
The company is also among the finalists for the Cork Company of the Year awards which are to be announced next month.
Both companies expect the deal to close by the end of September.
BREAKING: Hillary Clinton says as president she would block deals like Johnson Controls and Tyco inversion with 'exit tax'— Reuters U.S. News (@ReutersUS) January 25, 2016
Johnson Controls shareholders may choose one share of the combined company or $34.88 per share in cash.
Johnson Controls is continuing with its plan to spin-off its car-seating operations, slated by year-end.
A deal would complete the transition of Johnson Controls from a diversified manufacturer of car parts, batteries and building controls into two more focused companies.
A merger also would end one of the last vestiges of Tyco, the one-time conglomerate that divided into multiple companies after former CEO Dennis Kozlowski was forced out in 2002 and later went to prison.
Johnson Controls has been trying to reduce its reliance on the car-parts industry, which accounted for about 54% of its fiscal 2015 sales.
Johnson Controls’ chairman and CEO Alex Molinaroli will have the same roles at the combined company for 18 months after the closing, while Tyco CEO George Oliver serves as president and chief operating officer, as well as director.
Tyco, which is based in Cork and run from Princeton, New Jersey, makes commercial fire and security systems with a stockmarket value of $13bn.
The combined company will have its primary operational headquarters in north America in Milwaukee.
The US corporate income tax rate, 35%, is the highest in the developed world, and certain corporate tax laws mean an independent US company could end up paying more taxes than an identical US company owned by a foreign parent.
Since 1982, more than 50 US companies have reincorporated in low-tax countries, with Ireland becoming a popular corporate home.
The move, known as an inversion, has become more frequent since 2012 and has become an issue in the US presidential race, with Donald Trump and Hillary Clinton among those calling for an end to the practice.
Tyco itself got a foreign tax address in the late 1990s through an inversion.
That transaction involved a takeover of the security company ADT, which was incorporated in Bermuda.
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