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What's going on?
The latest mega-merger got announced on Monday morning: two big industrial companies, Johnson Controls and Tyco International are merging in a deal that will probably be worth more than $30 billion.
What does this mean?
Johnson Controls is one of those major companies that you might have never heard of, but it does things like heat your car seat and manage your office building heating system. And its worth about $23 billion. Its merging with another big company, Tyco International, that makes security and safety systems for businesses. The deal will allow the combined company to offer its existing client base a wider range of products.
Why should I care?
The bigger picture: Tax law continues to encourage US companies to move overseas. Its another tax inversion deal*: the new company will be an Irish entity (Tycos current headquarters). That means America is losing another multi-billion dollar company (just like Pfizer) and lots of the resulting tax dollars.
For the stocks: Both companies are looking to revive lagging share prices. Both were down more than 20% in the past year (although Tycos jumped 11% on Monday as a result of the news; Johnson was down almost 4%). They are expecting at least $500 million in operational savings (a.k.a. cost synergies*) by combining the companies and at least $150 million in reduced taxes. That should help improve profits. But both companies have seen their revenue growth falter recently and that needs to be fixed by new (and/or better) products, not cost-cutting.
*we have launched our new Glossary. To see Finimizes descriptions of a tax inversion deal and cost synergies, click here or here.
Originally posted as part of the Finimize daily email.
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