Johnson Controls to sell R&LC, HVAC business in $6.7B all-cash transaction

Johnson Controls announced it has reached a definitive agreement to sell its Residential and Light Commercial, or R&LC, HVAC business in an all-cash transaction to the Bosch Group. The transaction includes the North America Ducted business and global Residential joint venture with Hitachi, of which Johnson Controls owns 60% and Hitachi owns 40%. The total transaction is valued at $8.1B, and the company’s portion of the consideration is approximately $6.7B. As part of the transaction, Hitachi will retain certain ductless HVAC assets located in Shimizu, Japan. The transaction represents a significant portion of the company’s previously announced strategic evaluation of non-core product lines. Johnson Controls’ R&LC HVAC business, which is reported in the Global Products segment, engineers and manufactures ducted and ductless HVAC equipment and components globally for both residential and light commercial applications. In fiscal 2023, the R&LC HVAC business generated approximately $4.5B in consolidated revenue. Following the close of the transaction, the R&LC HVAC business will continue to provide residential and light commercial HVAC products under the York and Hitachi brands as well as Coleman, Champion, Luxaire, Guardian, Evcon, TempMaster and others. The total consideration of approximately $6.7B to Johnson Controls includes approximately $4.6B for its North America Ducted business representing a multiple of 16.7x fiscal 2023 EBITDA and includes approximately $2.1B for its interest in the Johnson Controls-Hitachi Air Conditioning joint venture representing a multiple of 7.5x fiscal 2023 EBITDA. The transaction is expected to be accretive to profit margins adjusted for the impact of equity income. Net cash proceeds to Johnson Controls is expected to be approximately $5B after tax and transaction-related expenses. Consistent with its capital allocation policy, Johnson Controls expects to pay down debt to the extent required to retain its investment grade rating with the remaining proceeds available to be returned to shareholders. The company has begun working on a restructuring plan to minimize dilution post-close. The transaction is expected to close in approximately 12 months, subject to required regulatory approvals and other customary closing conditions. The company expects to report the operating results of the R&LC HVAC business in discontinued operations beginning in the fourth fiscal quarter of 2024.