Executives at Johnson Controls Inc. and Tyco International Ltd. believe ongoing productivity efforts and the combination of the two companies will result in $1 billion in savings.
The companies have said their combination will result in $650 million in operational and tax savings. Tyco chief executive George Oliver said today that productivity efforts at his company will result in another $100 million of savings and similar efforts at Johnson Controls will net $300 million in additional savings. The companies are targeting the addition of $1 in earnings per share as a result of the merger, Oliver said.
Oliver and Johnson Controls CEO Alex Molinaroli spoke together at the Electrical Products Group Conference in Florida. Their presentation detailed where the productivity and cost savings would come from.
The largest chunk will be about $400 million in the consolidation of general and administrative expenses. The savings will include the elimination of duplicated spending in human resources, finance, legal, information technology and other areas. All of the Milwaukee properties identified in the company’s Securities and Exchange Commission filing are listed as administrative only.
The company has about 3,400 employees in the area, but spokesman Fraser Engerman said he wouldn’t speculate on what the specific impact of the savings would be locally. He reiterated the merger will benefit Milwaukee.
“Milwaukee will be the primary operational headquarters in North America of a significantly larger and more valuable global company,” Engerman said in an email. “We see this as a win for Milwaukee and look forward to our continued and strengthened commitment to the community.”
Another $275 million will come from enhanced procurement capabilities and $225 million will be from integration of field teams.
Molinaroli said the $1 billion figure, and where it comes from, establishes a framework for what is possible for the combined company.
“I would expect you will see more, not less, (in savings) from there,” he said.
Molinaroli also stressed the potential for additional revenue synergies through cross-selling and the ability to offer a complete infrastructure solution for building customers. He said his experience integrating York into Johnson Controls gives him confidence.
“I know it’s not the same, but it’s not that different either,” he said.
When the Tyco deal was first announced, much of the focus was on Johnson Controls shifting its legal domicile to Ireland to achieve $150 million in tax savings. Molinaroli has maintained the deal is much more about the strategic match of the two companies.
“As we get closer and closer to this, we like it more and more,” he said.
