Johnson Controls To Boost Profit Margins With $8.1B Bosch Deal

Johnson Controls International plc JCI shares are trading higher after the company agreed to sell its Residential and Light Commercial (R&LC) HVAC business to the Bosch Group.

The total transaction is valued at $8.1 billion, with Johnson Controls’ share of around $6.7 billion.

The transaction includes $4.6 billion for its North America Ducted business (16.7x fiscal 2023 EBITDA) and $2.1 billion for its stake in the Johnson Controls-Hitachi Air Conditioning joint venture (7.5x fiscal 2023 EBITDA) in which Johnson Controls holds a 60% stake, and Hitachi owns 40%.

Johnson Controls is projected to receive net cash proceeds of around $5.0 billion after taxes and transaction-related costs.

Following its capital allocation policy, Johnson Controls plans to use the proceeds to reduce debt and maintain its investment-grade rating, with the remaining funds to be returned to shareholders.

The transaction is anticipated to enhance profit margins once it is adjusted for the effects of equity income.

The transaction is anticipated to close in about 12 months, pending regulatory approvals and standard conditions, with the R&LC HVAC business to be reported as discontinued operations starting in Q4 2024.

As part of its ongoing transformation and this transaction, the company is developing a restructuring plan to minimize post-close dilution, leveraging recent functionalization efforts and focusing on strengthening its commercial buildings solutions business.

Johnson Controls expects third-quarter 2024 adjusted EPS to exceed its prior guidance slightly.

The company anticipates to report earnings on July 31.

Investors can gain exposure to the stock via First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund GRID and Carbon Collective Climate Solutions U.S. Equity ETF CCSO.

Price Action: JCI shares are trading lower by 1.81% at $68.94 at the last check Tuesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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