Johnson Controls and Tyco today announced that they have entered into a definitive merger agreement under which Johnson Controls, a global multi-industrial company, will combine with Tyco, a global fire and security provider, to create a combined company offering building products and technology, integrated solutions and energy storage.

Johnson Controls currently offers various energy management solutions including demand response, storage, energy efficiency, and automation/energy management.  The companies said that the merger accelerates their innovation and ability to capture opportunities in fast-growing 'smart' markets with the latest in devices, controls, sensors, data analytics and advanced solutions

Under the terms of the agreement, which has been unanimously approved by both companies' Boards of Directors, Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Current Tyco shareholders will own approximately 44 percent of the equity of the combined company.

"We believe this transaction will allow us to better capture opportunities created by increased connectivity in homes, buildings and cities," said George R. Oliver, chief executive officer, Tyco.

The combined company brings together product, technology and service capabilities across controls, fire, security, HVAC, power solutions and energy storage, to serve various end-markets including large institutions, commercial buildings, retail, industrial, small business and residential. The companies said that the combination of the Tyco and Johnson Controls buildings platforms creates immediate opportunities for near-term growth through cross-selling, complementary branch and channel networks, and expanded global reach for established businesses.

The new company will also benefit by combining innovation capabilities and pipelines involving new products, advanced solutions for smart buildings and cities, value-added services driven by advanced data and analytics and connectivity between buildings and energy storage through infrastructure integration. As a result, the new company will be able to better partner with its customers to help improve their overall performance and operations, enhancing the experience for their own customers in areas such as comfort, safety and accessibility, the companies said

In addition, the combined company will have one of the largest energy storage platforms with capabilities including traditional lead acid as well as advanced lithium ion battery technology serving the global energy storage market.

Johnson Controls is in the midst of a strategic transformation to become a top-quartile multi-industrial company with leadership in attractive spaces connected to core growth platforms in buildings and energy storage. This focus has resulted in significant portfolio changes over the past few years including the divestiture of its Automotive Electronics and Interiors and Global Workplace Solutions businesses, as well as the acquisition of Air Distribution Technologies and the formation of Johnson Controls - Hitachi joint venture. The company announced in July 2015 that it is planning to spin off Adient at the beginning of fiscal year 2017.

Tyco has transformed from a diversified holding company to a streamlined operating company with a focused and leading portfolio in fire and security that will complement Johnson Controls' buildings platform.

Under the terms of the proposed transaction, the businesses of Johnson Controls and Tyco will be combined under Tyco International plc, which will be renamed "Johnson Controls plc." The companies expect that shares of the combined company will be listed on the New York Stock Exchange and trade under the "JCI" ticker. Upon the closing of the transaction, the combined company is expected to maintain Tyco's Irish legal domicile and global headquarters in Cork, Ireland. The primary operational headquarters in North America for the combined company will be in Milwaukee, where Johnson Controls has been based.

Pro forma for the transaction and separation of Adient, Johnson Controls is expected to have approximately $32 billion of revenue in fiscal year 2016 and $4.5 billion of EBITDA before synergies. Adient is expected to have approximately $16.6 billion of revenue in fiscal year 2016 and $1.6 billion of EBITDA. In addition, Adient is expected to distribute between $2.5 to $3.5 billion to Johnson Controls in conjunction with the spin-off.

The new company expects to deliver at least $500 million in operational synergies over the first three years after closing. These annual cost synergies are expected to be achieved by increasing efficiencies, eliminating redundancies, integrating the global branch networks, and leveraging the combined scale of an over $20 billion buildings business platform. In addition, the transaction is expected to create at least $150 million in annual tax synergies.

Johnson Controls shareholders will own approximately 56 percent of the equity of the combined company and receive aggregate cash consideration of approximately $3.9 billion. Tyco shareholders will own approximately 44 percent of the equity of the combined company. The exchange ratio represents a 13 percent premium to Tyco shareholders based on 30-day volume-weighted average prices and an 11 percent premium based on share prices as of the close of market on Jan. 22, 2016, assuming that each share of the combined company has a value equal to one Johnson Controls share. Given their ownership of the combined company, both Tyco and Johnson Controls shareholders will participate in the substantial value-creation opportunities presented by $650 million in synergies, plus incremental upside from revenue growth acceleration.

Post-transaction, the combined company expects to maintain a strong investment grade credit rating and continue to pursue a balanced capital allocation program including a strong and growing dividend, consistent return of capital, and value-creating investment.

Both Johnson Controls and Tyco shareholders will receive shares of Adient (Johnson Controls Automotive Experience) which will be distributed after the merger. The Adient spin-off is expected to occur at the beginning of fiscal 2017.

Immediately prior to the merger, Tyco will effect a reverse stock split so that Tyco shareholders will receive a fixed exchange ratio of 0.9550 shares for each of their existing Tyco shares.

Johnson Controls shareholders may elect to receive either one share of the combined company for each of their Johnson Controls shares or cash equal to $34.88 per share, which represents Johnson Controls' five-day volume-weighted average share price. Elections by Johnson Controls shareholders are subject to proration such that an aggregate of approximately $3.9 billion cash is paid in the merger.

The combination will be tax-free to Tyco shareholders, and taxable to Johnson Controls shareholders.

Tyco has secured a committed $4.0 billion bank facility to finance the cash consideration of the transaction.

The completion of the transaction, which is expected by the end of fiscal year 2016, is subject to customary closing conditions, including regulatory approvals and approval by both Johnson Controls and Tyco shareholders.

Following closing of the transaction, the board of directors of the combined company is expected to have 11 directors, consisting of six directors from Johnson Controls and five directors from Tyco. Alex Molinaroli will be the chairman and chief executive officer (CEO) of the combined company. George Oliver will serve as president and chief operating officer and serve as a director on the new board, with responsibility for the operating businesses and leading the integration.

Mr. Molinaroli will serve as chairman and CEO for a term of 18 months after the closing. At that time, Mr. Oliver will become CEO and Mr. Molinaroli will become executive chair for one year, after which Mr. Oliver will become chairman and CEO.

As part of today's announcement, both companies provided preliminary 2016 first fiscal quarter earnings results. Johnson Controls said its adjusted earnings per share for the first fiscal quarter is expected to be $0.82, compared with guidance of $0.80 - $0.83. Tyco's earnings per share before special items is expected to be $0.42 versus guidance of $0.40.