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Does anyone understand the impact of the Johnson Controls merger on shareholders?
Old 08-27-2016, 12:14 PM   #1
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Does anyone understand the impact of the Johnson Controls merger on shareholders?

Does anyone out there own or follow Johnson Controls? I've been web searching for details of what the Johnson Controls / Tyco merger will mean for JCI stockholders. This is my understanding, I would appreciate any confirmation or correction:

1. The merger was overwhelmingly approved, that question is settled.

2. JCI stockholders can choose to take new shares at a 1:1 rate, or tender their shares at $34.88 each in cash. Shares that are not voted will be assumed to be opting for the stock exchange. Either option will be a taxable event.

3. JCI will receive $3.9b cash from Tyco. This will be used to pay the tender offers. If there are not enough tender offers, the remaining cash will be distributed to JCI shareholders on a pro rated basis at the $34.88 rate. The distribution will reduce the share exchange rate.

With Friday's closing price of $43.89 I don't see anyone tendering their shares at $34.88, so this scenario (from the JCI website) is likely to occur:

http://www.johnsoncontrols.com/-/med...rio1.pdf?la=en

Essentially, 17.5% of my shares are being "called" at $34.88 if I opt for share exchange or don't vote.

My cost is $37.72 for shares purchased less than 12 months ago so I will lose about 7% on the called shares, plus I'll have some short term capital gains on the exchanged shares.

Is this right? It doesn't seem like a good deal to me. Should I just sell @ $43.89 and wait for the dust to settle?
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Old 08-27-2016, 12:39 PM   #2
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My broker called me on this a couple of days ago. I owned several thousand shares. family had owned a bunch for many years. My uncle had decided to sell all of his shares recently, though he thought the new company may do well. I am younger and decided to sell half and keep half of the new stock. Kinda the middle of the road. I sold on open market at 45.16 a share this week.


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Old 08-27-2016, 12:41 PM   #3
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I have a little in the DRIP from years ago. The shares were in the $45's when I got my ballot. Voted against combining with the poorly run Tyco, but lost. Got the cash offer and chucked the paper in the shredder. My shares are in DRIP jail and I am stuck with being screwed over by company management. It's not enough to worry about, but I hate to see a good company get dragged under and at the expense of the shareholders.

ETA: If I could sell on the open market, I would do so.
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Old 08-27-2016, 01:01 PM   #4
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Thanks for the comments.

Retired, I think you will get a prorated cash buy out for the 50% of shares you still hold, so remember you will be selling some to the company at $34.88.

A.R., I'm not as pessimistic as you on Tyco management but I just can't see the logic of holding an overpriced share just to sell it back to the company at a discount.

I'm going to sell all my 270 shares on Monday unless someone finds a flaw in my thinking.
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Old 08-28-2016, 10:11 AM   #5
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So it seems this low tender price was set when the stocks of both companies was lower, and now does not make sense.

I don't hold any of these (except in index funds) but if I did, I'd sell on the market, and if I liked the company, buy back after the merger since in the turmoil I suspect the stock will drop. If it didn't drop, I'd simply buy something else.
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Old 08-29-2016, 02:15 PM   #6
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I have to say it is hard to get a straight answer on the merger from Johnson Control or anyone else associated with its passing and implementation. The article Brian posted is one I have looked at several times and believe that is what will happen. Most of us long time holders will be paying capital gains and the company management, although big stockholders, will have it covered by their big payouts. I am furious since I voted no not just because of the tax issue but because of the affect of Brexit on Ireland and its tax laws.
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Old 09-02-2016, 11:42 PM   #7
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Thanks for the reminder and heads up about this transaction. I have not looked into this enough yet, especially the tax considerations but my understanding based largely on the link in the opening post and other sources is that if you did not vote or voted for the merger then you will get (0.825 * number shares of JCI) of shares in the new company along with $6.085/share of JCI. The stock quote of both TYC & JCI look pretty similar right now and the increase above $34.88 likely represents the rise in market value since the deal was originally announced.

Ignoring tax consequences I would not expect any advantage in selling before the merger, that should be done based on your belief in the new enterprise. (If I were to speculate without doing proper research I might imagine that the difference in todays closing prices TYC=$45.59 and JCI=$45.45 represents a small potential loss ($0.14) people were willing to pay to get out of JCI ahead of the merger closing. To avoid the confusing entanglement that these mergers and odd stock lots and extra brokerage fees that these mergers can often create. Especially if one is a small shareholder).
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Old 09-06-2016, 09:41 AM   #8
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Day one of trading in the new company, price is up to $47.80. I sold at $43.80 so missed out on the ~10% uptick. Estimating that 15% of my shares would have been "called" at $34.88 the per share value would be: 85% * $47.80 + 15% * $34.88 = 45.87 average per share.

As of this moment my decision doesn't look so good, we will see what happens going forward.

BTW, I noticed that the link I posted is broken. I tried to find a good URL but could not.
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Old 09-07-2016, 06:20 AM   #9
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I too have found that link removed from the JC merger page. However your estimate of the distribution is pretty accurate as their latest info page states roughly 55% returned their election forms with 1.1% choosing to cash out. The other 43% didn't return the form at all so they opt by default for the exchange. You didn't do so bad ...you're still above what JC is paying for the called shares.
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