"You could say we were surprised," said one York International-Unitary Products Group (UPG) official, who asked not to be identified. "However, the general mood is that this will be an excellent fit. Johnson Controls is a very strong company and York will give them an air conditioning division, which they've never had. Change, as you know, is inevitable, and as company sales go, this should be good for all parties concerned."
At the official teleconference on Aug. 25, the top three officials from the two companies certainly painted a bright future for everyone concerned.
"This is a whole new chapter for both companies," said John Kennedy, president, Controls Group, Johnson Controls. "We have just doubled our ties. It's a game change for both."
For Milwaukee-based Johnson Controls, buying York International means a chance to boost its business outside the automotive industry and a chance to rapidly expand its global markets in the controls industry. For York International, the deal means a chance to join a strong company with a long history of profitability.
"Our business continues to strengthen and is at the point where it is in the best interests of our shareholders, customers, and employees to join forces with an industry leader in control systems and services," said C. David Myers, president and chief executive officer of York.
"The combination of these two great companies, with similar cultures of innovation, critical values and customer service, points toward an outstanding future. We look forward to working with Johnson Controls and delivering the benefits of this exciting transaction."
Johnson Controls did not buy York purely for the sake of sales growth. The merger should also help the combined company grow its aftermarket and service businesses, too. "When we look at acquisitions, we really look at it as platform growth," said John Barth, chairman and chief executive officer of Johnson Controls.
Analysts see that as the likely outcome. "It's a really big leap from what they were doing," David Siino, an analyst with Gabelli & Co., in Rye, N.Y., told the York (Pa.) Dispatch. "Once you install the things, there's a greater opportunity to service them in the future."
The company may gain an edge over its competitors. "I don't think anybody else would be able to offer the integrated package this deal creates," said Siino.
Investors voiced approval of the companies' plans. At last report, York's stock was trading for more than the $56.50 per share Johnson Controls is offering in the merger.
Strategic Benefits Of Transaction
The combination of Johnson Controls and York is expected to produce a number of important benefits, including the following:"Johnson Controls and York are ideal partners, and this transaction will bring significant benefits to shareholders, customers and employees of both companies," said Barth. "By joining with York, a market leader with a strong growth outlook, Johnson Controls is staking out a strategic leadership position in the global building environment industry that will offer significant growth potential and synergies with our controls business. Importantly, Johnson Controls will maintain its strong financial position, while substantially diversifying our business mix."
He added, "The transaction will enable us to become a single source of integrated products and services that building owners want in order to optimize comfort and energy efficiency. With the addition of York, we will have enhanced HVACR, controls, fire, and security capabilities. Bringing together our two organizations will also create the largest building services force in the world, strongly positioning us to capture an increased share of the fragmented $130 billion global services market for commercial buildings."
Now that York is aboard, expect Johnson Controls' building controls products to trickle down to York's products in the residential market, too.
"We are excited about the possibilities," said Myers. "With our joint capabilities and product capabilities, all contractors should benefit."
It was unclear how the two companies will put this on display, but Alex Molinaroli, vice president and general manager, Americas - Controls Group, Johnson Controls, admitted it will be an "interesting ASHRAE show," referring to the International Air-Conditioning, Heating, Refrigerating Ex-position, to be held in Chicago Jan. 23-25, 2006.
Johnson Controls anticipates the transaction will close in December of this year, subject to customary closing conditions that include regulatory approvals and York shareholder approval. York's board of directors has unanimously recommended that York shareholders vote in favor of the transaction at a shareholders meeting that will be scheduled as soon as can be arranged.
Early on there were a few reports indicating York could attract more offers from other prospective buyers. However, a more competitive bid had not surfaced as of press time.
Questions From Employees
Those most in the dark are employees and factory workers. Monica Levy, spokeswoman for Johnson Controls, said it is too early to speculate what the sale could mean for York's employees.An integration team is being formed, with representatives from both companies. The team will issue recommendations on which facilities to keep open and which jobs to retain, Levy said.
Though more than half of the company's sales are domestic, only four of its 12 control division manufacturing sites are located in the United States, according to Johnson Controls' published financial statements. The other eight are located in China, Germany, Italy, Japan, Mexico (two), the Netherlands, and Switzerland. Most of its automotive division manufacturing plants are in foreign countries as well.
Notes in the financial statements read, "Company management is continually analyzing our businesses for opportunities to consolidate current operations and to locate our facilities in low cost countries in close proximity to our customers."
A restructuring plan by Johnson Controls last year to lower expenses resulted in the termination of 470 control group employees in North America and Europe and 1,500 employees in the automotive group, mostly in Europe.
"We're confident that we'll achieve the resulting growth and cost synergies available through the pairing of these two companies," said Barth. "Johnson Controls has a long history of successfully integrating and growing companies we've acquired. We're excited about joining with York to continue building on the success of these two great brands and bringing value to our shareholders."
Sidebar: York International Fact Sheet
Company Description: York International is considered one of the largest independent suppliers of HVACR systems and solutions. York designs, manufactures, sells, and services HVAC systems for commercial and residential markets; gas-compression equipment for industrial processing; industrial and commercial refrigeration equipment; and compressors for residential and commercial air conditioning. Headquarters: York, Pa. Web site: www.york.com. 2004 Financials: Sales - $4.5 billion (Americas: 49 percent; Europe: 36 percent, Asia: 15 percent). Net income - $81.6 million. Since becoming an independent company in 1986, York said it has recorded compound annual growth rate in sales of 11 percent. Dividends have been paid consecutively since going public in 1991. History: Founded in 1874 in York, Pa., to manufacture ice-making equipment. Brands: York, Frick, Coleman, Luxaire, Stal, Sabroe, Gram, and Bristol Compressor. Segments: Global Applied (75 percent of 2004 revenues). Commercial and industrial A/C mechanical equipment; industrial refrigeration equipment. Primary customers - Mechanical contractors, consulting engineers, building owners and developers, and governmental agencies. Unitary Products (18 percent of 2004 revenues). Residential and light commercial air conditioning equipment. Primary customers - Independent distributors of HVAC products, mechanical contractors, and manufacturers of manufactured homes. Reciprocating and Scroll Compressors (7 percent of 2004 revenues). Customers - Wholesalers, OEM re-sellers, and international representatives. Locations: 26 manufacturing plants in 9 countries; sales and service locations serving 125 countries. Employees: 24,000.Sidebar: Johnson Controls Fact Sheet
Company Description: Johnson Controls is considered a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of integrated seating and interior systems, and batteries. For nonresidential facilities, Johnson Controls provides control systems and services including comfort, energy, and security management. Headquarters: Milwaukee, Wis. Web site: www.johnsoncontrols.com. 2004 Financials (Continuing Operations): Sales $25.4 billion (North America: 53 percent; Europe: 39 percent, rest of world: 8 percent). Net income: $766.8 million. According to Johnson Controls, it has had 58 consecutive years of sales increases, 14 consecutive years of earnings increases, and 30 successive years of dividend increases. Dividends have been paid consecutively since 1887, the company said. History: Founded in Milwaukee in 1885 by Warren S. Johnson, inventor of the first electric room thermostat. Businesses: Controls (21 percent of 2004 sales) - Considered one of the global leaders in control systems and services for HVAC, lighting, security and fire management for nonresidential buildings, facility management, and consulting services. Seating and interiors (70 percent of 2004 sales) - Considered one of the global market leaders in automotive seating and interior systems, including overhead, door, instrument panel, and electronics products. Battery (9 percent of 2004 sales) - Considered one of the global market leaders in automotive batteries for both the automotive replacement and original equipment markets. Acquired automotive battery business of Delphi in July 2005. Locations: 300 manufacturing plants, 330 controls sales and service branch offices. Employees: 120,000.Publication date: 09/05/2005
