Johnson Controls International weighs future of its battery business

The company's Power Solutions business is one of the industry's biggest battery sources.

Johnson Controls International has imposed a fall deadline on deciding what to do with its Power Solutions business. But at least publicly, it is keeping all options open for one of the industry's biggest battery sources.

JCI is discussing whether to keep the battery business, sell it or spin it off.

"As we previously discussed, we are analyzing multiple options," JCI CEO George Oliver told analysts during the company's July 31 quarterly earnings conference call.

The company has been tight-lipped about its plans since putting Power Solutions under "strategic review" in March.

Management has provided no details about its deliberations.

Oliver told investors that the results of the strategic review would be disclosed no later than the company's fiscal fourth quarter report, due in November for the period ending Sept. 30.

Oliver: "Analyzing multiple options"

Bloomberg reported last month that, according to people familiar with the discussions, as many as four investor groups are interested in bidding on the battery business. Bloomberg said the top two contenders are Apollo Global Management, a New York fund that manages $69 billion in assets representing more than 150 companies, and Brookfield Asset Management, a Toronto investment firm with $285 billion in assets under management, including $43 billion in assets in the renewable power and energy storage sector.

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As a business, JCI's Power Solutions continues to show promise, and Oliver made it clear that retaining the global operation is a viable option, particularly as JCI delves deeper into batteries for vehicle electrification.

He said recent contract awards on vehicle platforms "position us well to gain share. The increasing electrification in vehicles, combined with a regulatory environment still pushing for stronger efficiency standards, are supportive of our core battery technologies."

Power Solutions posted $1.84 billion in sales during the most recently concluded fiscal quarter, up 14 percent from a year ago. Its pretax earnings were up just 2 percent, to $310 million. For JCI overall, net income from continuing operations rose 30 percent to $723 million for the quarter.

Johnson Controls' Power Solutions business, under "strategic review" since March, may be retained, sold or spun off.

Wall Street observers have remained neutral on JCI's considerations.

"All options appear to be on the table including sale, spin or retain," wrote Jeffrey Sprague, managing partner for Vertical Research Partners in Stamford, Conn., in a note to investors. Sprague estimated that if the battery business were sold, the deal would yield net proceeds to JCI of about $10.2 billion.

Joe Ritchie, an analyst for Goldman Sachs Research in New York, said in a report, "We take no view on the potential outcome of any transaction."

Power Solutions is JCI's last major automotive holding.

In October 2016, the company spun off its segment-leading automotive seating business as Adient, headquartered in Dublin, Ireland.

Except for batteries, JCI, headquartered in Cork, Ireland, is primarily focused on building controls for systems such as heating, ventilation and air conditioning, fire suppression and security.

But the battery business represents a major chunk of JCI's sales, accounting for 24 percent of fiscal 2017 sales. Power Solutions produced 154 million lead-acid batteries in fiscal 2017. Of those, 76 percent were for aftermarket sales, and the rest — about 37 million units — supplied automakers, according to company financial data.

Three years ago, the Automotive News list of the top 100 global suppliers ranked JCI as the world's ninth largest supplier of automotive original equipment. This year, JCI ranks No. 89 on the list, with estimated worldwide automotive parts sales of $1.84 billion in fiscal 2017.

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