The transformation of Johnson Controls International continues.
On Tuesday, the company said it reached a deal to sell its power solutions business, which makes a variety of vehicle batteries, in a cash transaction valued at $13.2 billion. The buyers are investment firm Brookfield Business Partners (NYSE: [[ticker:BBU]]) and a group of partners, including Canadian investment firm Caisse de dépôt et placement du Québec.
It’s the end of an era for Johnson Controls (NYSE: [[ticker:JCI]]), which has decided to focus on its products for buildings, such as heating and air conditioning equipment, Internet-connected thermostats, software for managing buildings’ energy efficiency, and fire alarm systems. Once the sale of the vehicle battery business closes, the company will have exited the automotive industry completely. JCI used to be a major supplier of vehicle seats and automotive electronics. It spun out the seating business two years ago as Adient (NYSE: [[ticker:ADNT]]), and it sold off the vehicle electronics division in pieces, including the $700 million sale of its HomeLink business to Zeeland, MI-based Gentex in 2013 and the $265 million sale of the rest of the automotive electronics assets to Visteon the following year.
JCI’s power solutions business makes lead-acid batteries and lithium-ion batteries for hybrid electric vehicles. The unit generated $8 billion in revenue in fiscal year 2018, about a quarter of JCI’s $31.4 billion in total annual revenue. But the business is capital-intensive, and selling it will give the company more “financial flexibility” and will “streamline” JCI’s portfolio of products and services, CEO George Oliver said in a prepared statement.
JCI also recently stepped away from its battery storage technology business, forming a joint venture with Consolidated Edison Solutions, in which JCI is the minority owner and will contribute intellectual property but not sell the products.
The result of all these moves is that JCI will soon be “a pure-play building technologies and solutions provider” that Oliver hopes will be “better positioned to lead the integration and evolution of the connected building and to capture strategic opportunities in the” heating, ventilation, and air conditioning industry, he said in the prepared statement.
The shift can also be seen as JCI re-focusing on its roots. Its founder, Warren Johnson, received a patent in 1883 for inventing the electric thermostat, and he started a company in Milwaukee two years later to sell devices for regulating building temperatures. Over the years, the firm grew beyond those early thermostats and diversified, often through acquisitions. Today, JCI maintains a key operational office in the Milwaukee area, but it established corporate headquarters in Cork, Ireland, following its merger with Tyco in 2016.
JCI’s sharpened business focus sends another signal that multi-industry conglomerates are falling out of favor, at least among some big-company executives and their investors. General Electric (NYSE: [[ticker:GE]]) is arguably the poster child for this trend. The Boston-based corporation has been shedding businesses in recent months, including announcing a spinout of its healthcare division, selling its distributed power and industrial solutions units, and planning to divest its commercial lighting business. To be fair, some of GE’s businesses are struggling and its stock price has tanked over the past year, so the divestitures might be more about righting the ship than a change in philosophy regarding the merits of diverse conglomerates.
Other corporations that have simplified their products in recent years include Philips, the Dutch firm that has transformed itself from a collection of disparate divisions, products, and services into a more focused healthcare technology company.
“We found that being a holding company with multiple divisions in completely different areas is a distraction,” Philips CEO Frans van Houten told Xconomy in January. “Also, frankly speaking, shareholders find it confusing” and customers question the company’s commitment to each business, he added.
