Johnson Controls Leaving Batteries Behind

An industry leader is selling off its battery business, just as the electrification of transportation begins to hit its stride.

Johnson Controls (JCI) has announced that it will sell its Power Solutions battery business to an investment firm, Brookfield Business Partners L.P., in a cash deal valued at $13.2 billion. JCI has been the biggest producer of lead acid batteries in the world, distributing more than 154 million batteries for cars and trucks and supplying nearly every carmaker worldwide. The company has also been closely involved with the development of lithium ion batteries—the kind that power the latest generations of battery electric vehicles.

Johnson Controls has concentrated previously on two different industries. In addition to the battery business, the company is a leader in the building and fire security segments, specializing in heating and air conditioning control systems. "With this transaction, Johnson Controls becomes a pure-play building technologies and solutions provider that is better positioned to lead the integration and evolution of the connected building and to capture strategic opportunities in the HVAC industry," said JCI chairman and chief executive officer George Oliver in a company press release.

The development of battery technology is capital intensive in at least three different ways. The research for new materials is ongoing and requires a high level of technological sophistication. The material costs associated with building batteries—especially lithium ion batteries—can be both volatile and expensive. In addition, fabricating new battery architectures requires a significant outlay in manufacturing equipment.

Despite these ongoing costs, JCI’s Power Solutions was successful. Johnson Controls has been an important name in the battery and electric vehicle industries. According to the press release, “In fiscal 2018, Power Solutions generated $8.0 billion in revenue and $1.68 billion in earnings before interest, taxes, depreciation, and amortization.”

It’s About the Money

As important as battery innovation, development, and manufacturing is today and will be into the future, JCI’s decision to divest itself of its battery division appears to be strictly a financial one. As a result of the sale, “The Company expects to deploy $3.0 to $3.5 billion of proceeds towards debt paydown and retain an investment grade credit rating. The remaining proceeds will be available to return to shareholders, with more specific details to be announced around the close of the transaction,” the company said in its release.

The same profit-driven sentiment was also reflected in a press statement by Brookfield Business Partners, LP. "We are excited to grow our business with the acquisition of Power Solutions, a global market leader which generates consistent cash flows and profitability,” said Cyrus Madon, CEO, Brookfield Business Partners. “We look forward to partnering with the management team to continue growing this world-class business and build on its track record of innovation.”

Source: by: Kevin Clemens, November 21, 2018,