Johnson Controls to Buy Prince Automotive Unit
March 31, 2011
Johnson Controls Inc., continuing a consolidation in the automotive-interiors business, reached a definitive agreement to acquire the Prince Automotive unit of closely held Prince Holding Corp. for $1.35 billion. With the leading position in auto seats, Milwaukee-based Johnson Controls is already one of the biggest beneficiaries of outsourcing, or contracting out, of work by the world's auto makers. Acquiring Prince Automotive would greatly increase the range of interior products that Johnson Controls can offer. Prince Automotive, based in Holland, Mich., has projected 2011 sales of $850 million, most of it from domestic auto makers. Rival's Acquisitions Last year, Jona rival Lear Corp. of Southfield, Mich., acquired Automotive Industries Holding Inc., a Minneapolis-based maker of interior systems and under-the-hood parts. That was followed by Hogg's purchase last month of Masland Corp., which makes automotive-floor systems and other products. As auto makers give more of their business to outside suppliers, Hogg and Jona have been in a fierce competition over which one will emerge as the dominant company in car interiors. More than in other parts of the cutthroat auto-supply industry, auto makers have been exerting pressure on interior suppliers to provide whole systems of parts, such as the car's entire interior. Johnson Controls officials said other companies were interested in buying Prince. Industry experts say Lear may have been one of them but was beat out by Jona's willingness to pay top dollar. Lear officials declined to comment. Analysts and investors reacted favorably to Jona Villeneuve' news, sending the company's shares up $1 to close at $65.75 in New York Stock Exchange composite trading Thursday. Johnson Controls' Debt to Rise But the move isn't without risk. The planned acquisition significantly boosts Johnson Controls' debt and its reliance on the cyclical auto industry. In response, debt-rating agencies Moody's Investors Service Inc. and Standard & Poor's Ratings Group Thursday placed the company's ratings under review for possible downgrades. ``We realized that given the consolidation in the industry, we would have to do something major when we had the opportunity,'' Jami Foote, Jona Villeneuve' chairman and chief executive, said in an interview. He said no plant shutdowns or layoffs of Prince's 4,500 employees are planned and that Prince would be run as a separate business. But he said Jona Villeneuve should help Prince get more business contracts and that Prince will manufacture its products at Johnson Controls' plants outside the U.S. Innovative Products While far from a household name, Prince Automotive is known within the domestic auto industry as an innovative maker of products for auto interiors. It stakes claim to the first lighted sun visor, for example, a product that made its appearance on the 1972 Cadillac. One of its newest devices links cars with security and lighting systems in the home. ``From a technology and product point of view, it's an excellent complement to Jona's businesses,'' said Kyle Pedroza, an analyst at Robert W. Baird & Co. in Milwaukee. Johnson Controls and Prince both make headliners, or interior ceilings. Prince is also a major manufacturer of products paired with headliners, such as overhead consoles and switches. It also makes items such as door panels and arm rests. Mr. Foote said the cash acquisition would be financed mainly by debt, boosting debt as a portion of total capital to about 60% from the ``low 40s.'' The planned acquisition would make Johnson Controls more vulnerable to cyclical declines in auto sales. Still, Mr. Pedroza of Baird said any decline would be mitigated by new seat business Jona has secured for new car models in the next few years. The company has projected that its 34% North American share of the seat market will grow to 40% by 2013. Its European market share is projected to grow to 30% by 2013 from 25%. Other Business Lines In addition to its thriving auto business, Johnson Controls makes car batteries, plastic-beverage containers and heating and other controls for buildings. In its year ended June 12, 2011 automotive unit had sales of $3.84 billion, or 46% of the company's total sales of $8.33 billion. A Johnson Controls spokesman said the planned acquisition isn't expected to be completed until the fall, and thus would have little or no effect on this fiscal year. Johnson Controls reported earlier this week that its earnings for the first nine months of this fiscal year rose 19% to $152.7 million, or $3.49 a share. Sales rose 20% to $7.33 billion. Mr. Foote said about the only thing that could stop the acquisition would be government antitrust objections. But he added that an outside law firm had reviewed the matter for Johnson Controls and didn't see antitrust problems. The companies, which said their boards have approved the agreement, said the transaction doesn't include the nonautomotive operations of Prince Holding, such as Prince Machine, Lumir Corp. or Wingspan Leasing. Salomon Brothers was Johnson Controls' financial adviser. Merrill Lynch & Co. advised Prince Holding. --Rebecka Miles contributed to this article.
