Guy Boulton

Milwaukee Journal Sentinel

Johnson Controls International plc has agreed to sell its automotive battery business to a Canadian private equity firm and institutional investors, including an entity that manages public pension plans in Quebec, for $13.2 billion.

The sale, expected to close by June 30, would complete Johnson Controls’ exit from the automotive business and comes two years after the merger of Johnson Controls and Tyco International International plc.

Johnson Controls is the world’s largest manufacturer of automotive batteries, and the business accounted for $8 billion of the company’s $31.4 billion in revenue in its fiscal year ended Sept 30.

The business, known as Power Solutions, employs about 15,000 people, including about 500 in Glendale.

Its top managers are expected to remain in the Milwaukee area after the business is sold.

“That is absolutely the expectation,” George Oliver, chairman and chief executive officer of Johnson Controls, said in a conference call.

Timothy Wojs, an analyst at Robert W. Baird & Co., said the same this month.

“You typically don’t buy businesses and tell the people who run it to move,” Wojs said.

Johnson Controls would have about 2,200 employees in the Milwaukee area after the sale of the automotive battery business.

Under the agreement announced Tuesday, the business would be sold to Brookfield Business Partners L.P., a publicly traded limited partnership, and a group of institutional investors, including Caisse de dépôt et placement du Québec, in a cash transaction valued at $13.2 billion in cash.

Brookfield is a spin-off of Brookfield Asset Management, a Canadian firm that has $285 billion under management and invests in real estate, infrastructure, renewable power and private equity.

Caisse de dépôt et placement du Québec manages several pension plans and insurance programs for public entities and entities partially funded, operated or owned by the government in Quebec.

Johnson Controls said the sale would yield net proceeds of $11.4 billion after taxes and expenses related to the transaction.

The sale would increase the company’s ability to strengthen its balance sheet, return capital to shareholders and invest in new businesses, Oliver said in a statement.

The company plans to use $3 billion to $3.5 billion of the proceeds to pay down debt.

The sale also would create a “pure-play” company focused on heating, cooling, fire protection, and security products and services.

Those businesses have higher profit margins and are thought to have better prospects for growth than the automotive battery business.

Johnson Controls, which is based in Cork, Ireland, but has its main offices in Milwaukee, said in March that it was exploring the sale or spin-off of its Power Solutions business.

RELATED:Johnson Controls exploring sale or spinoff of its battery business

The automotive business accounted for roughly two-thirds of Johnson Controls’ sales before its merger with Tyco International in 2016.

Johnson Controls spun off its automotive seating business, now known as Adient plc, in October 2016, shortly after the Tyco merger. Adient’s businesses include Johnson Controls’ former automotive interiors business, which now is part of a joint venture with Yanfeng Automotive Trim Systems.

RELATED:Separation of Johnson Controls, Adient completed

The battery business had $1.7 billion in earnings before interest, taxes, depreciation and amortization in the most recent fiscal year.

The business is considered by Wall Street analysts as exceptionally well run.

The division's recycling capacity — its plants can recycle 8,000 batteries a hour — and its patented manufacturing processes give it a strong cost advantage, Brian Bernard, an analyst for Morningstar, noted in a May research report.

It also generates relatively predictable revenue because of its strength in the so-called after-market for replacement batteries, which account for more than 70 percent of its sales.

The predictable revenue make the business attractive to private equity investors, said Wojs, the analyst with Robert W. Baird & Co.

The business, which also makes advanced batteries used in start-stop vehicles and lithium batteries, has research and development centers in Shanghai; Hanover, Germany; Holland, Michigan; and Milwaukee.

Its research and development center in Milwaukee is the largest in North America.

Wall Street analysts such as Wojs and Bernard had hoped the battery business would draw a higher sales price.

Last year, Johnson Controls reported a 34.2 percent increase in net income for its 2018 fiscal year and projected a 25 percent to 31 percent increase in net income for the next year.

The company also said that it had made progress in reducing costs, increasing cash flow, lowering debt and expanding its sales force.

“We are making a lot of good progress,” Oliver said Wednesday. But he added, “There still is a lot more work to be done to get the full benefit of the combined companies.”