Mergers continue in 2016, Johnson Controls and Tyco tie up

Johnson Controls and Tyco will combine as the unprecedented pace of buyouts and mergers from last year rolls over into 2016. Shareholders of Johnson Controls Inc., based in Milwaukee, will own about 56 percent of the new company, which would have a combined value of about $36 billon, and Tyco shareholders the rest. Dealogic, a research firm that tracks Wall Street mergers and acquisitions, pegged the deal's value at $14.6 billion, excluding debt. Johnson Controls spokesman Fraser Engerman said he wasn't familiar with Dealogic's calculation. But the global headquarters will be in Cork, Ireland, where Tyco is based. Tyco International Plc has its U.S. headquarters in Princeton, New Jersey. The new company, named Johnson Controls Plc, will have its operational headquarters for the U.S. in Milwaukee. Its legal domicile, which could have tax implications, will be in Ireland.

The move, called a corporate inversion, has become a popular way for American companies to reduce their corporate tax payment to the IRS. About 50 U.S. companies have inverted in the past decade, with more seeking to do the same. Tyco and Johnson Controls said they expect annual tax savings of at least $150 million. Corporate inversions have become increasingly politicized with the election less than a year away, and Democrats including presidential candidates Hillary Clinton and Bernie Sanders have called for stronger rules to discourage inversions. Republicans have said the best way to curb inversions is to overhaul the tax code. In 2014, Treasury issued new regulations to limit the financial benefits of inversions, but officials said ultimately the issue must be solved by Congress.

One big question is whether companies will be rushing to merge with foreign companies before the election is over and any political action on inversions is taken. Tyco and Johnson Controls said the merger will speed innovation in fast-growing smart technology now being enabled in devices, sensors, data analytics and controls. Tyco makes fire suppression systems. Johnson controls makes ventilation systems, auto seating and car batteries. The deal also suggests that the unprecedented appetite for buyouts and acquisitions last year has not been suppressed by the extreme market volatility that kicked off 2016. In 2015, U.S. companies embarked on deals worth a total of nearly $4.8 trillion, busting a record set in 2007, according to Dealogic. The number of mega-mergers worth $10 billion or more also set a record. Dealogic calculated that the deal was worth $14.6 billion based on Tyco's shares outstanding and Johnson Control's Friday closing price of $35.60, said Dealogic spokesman Edward Jones. Johnson Controls shareholders will get $3.9 billion in cash consideration. Shareholders may choose to get one share of the combined company for each of their shares or $34.88 per share.