Industrial parts maker Johnson Controls announced on Wednesday morning that it was weighing a spinoff of its auto parts division so it could focus its full resources on other units such as its building air-conditioning operations.
Equity analysts point out the decision to explore strategic alternatives by Johnson Controls is yet another example of a large American company looking to break itself up to maximize operational efficiency and to unlock shareholder value. A number of S&P 500 heavyweights, including General Electric, Dow Chemical and Hewlett-Packard, have recently spun off slow-growth units into separate firms, saying that this gives each business more operating focus.
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Statement from Johnson Controls CEO
“Today’s announcement continues our strategy of proactive portfolio management to drive focus on strategic product-oriented businesses where we can be a global market leader, drive more profitable growth and deliver maximum long-term value for our customers and shareholders,” noted Alex Molinaroli, Johnson Control’s chairman and CEO, in the statement released Wednesday.
More on possible Johnson Controls auto parts unit spinoff
Johnson Controls’ automotive unit makes seats and other interior parts for autos, and it produced more than half of the company’s net sales in the 2014 fiscal year, (around $22 billion).
That said, sales growth is slipping in the division. In the most recent quarter, the firm said its automotive business revenues increased by just over 1%, to around $5.2 billion, not taking into account the impact of the strengthening dollar.
A decision to go ahead with a spin off of the auto parts unit would mark another step in the “Johnson Controls Operating System” initiative, a top to bottom internal overhaul designed to improve profitability and increase growth at the company.
The firm noted that it had no specific deadline to make its decision and was considering a variety of options for the auto division.
Goldman Sachs, Centerview Partners and the law firm Wachtell, Lipton, Rosen & Katz are assisting Johnson Controls in assessing its options.