By Bob Tita
Real-estate services company CBRE Group Inc. has agreed to buy
Johnson Controls Inc.'s workplace solutions business for $1.48
billion in cash, expanding CBRE's on-site staffing and management
services for commercial buildings.
For Johnson Controls, the sale of the global workplace solutions
unit, or GWS, is expected to be the last of a series of large
divestitures. The company has been focusing on higher-margin
business lines with sales-growth potential.
The GWS unit generated $4.1 billion in revenue last year and had
$95 million in operating profit. After the deal closes, CBRE will
manage 5 billion square feet of real estate and corporate
facilities, up from 3.8 billion square feet. The GWS business will
be folded into CBRE's global corporate-services business, where
revenue has been growing annually by 10% or more for the past
decade as corporations and institutions increasingly outsource the
management of their real estate.
"GWS is a business we've long admired," said CBRE Chief
Executive Bob Sulentic during a conference call with analysts. The
acquisition "is consistent without strategy of having a full suite
of top-quality, integrated services delivered around the
world."
Los Angeles-based CBRE, which is the world's largest commercial
real-estate-services company by revenue, expects the deal to be
"materially accretive" to its adjusted per-share earnings in 2016.
CBRE projects the acquisition will increase revenue from its
corporate services' business to $6.2 billion a year from $2.8
billion last year. The acquisition won't include GWS joint ventures
in Canada and Australia. The deal is expected to close in the
fall.
The Wall Street Journal reported earlier this month that the
CBRE and Johnson Controls were in talks over the workplace
unit.
As part of the deal, Johnson Controls will become the preferred
provider for building automation systems, security systems and
heating and air conditioning equipment for CBRE-managed properties.
The 10-year-long agreement is expected to generate about $500
million a year in revenue for Johnson Controls, the maker of
York-brand heating and air conditioning gear.
The two companies also agreed to fund an "innovation lab" that
will develop technologies and services to lower energy costs for
their customers' buildings. Johnson Controls described the ability
to leverage equipment sales through buildings managed or developed
by CBRE as a key feature of the GWS sale.
"This is more than just a transaction," Johnson Controls Chief
Executive Alex Molinaroli said during a conference call Tuesday
with analysts. "This is a deal that marries CB Richard Ellis and
Johnson Controls for the next 10 years. It creates a brand-new
channel for us and gives us a much larger reach."
Milwaukee-based Johnson Controls last year hired Bank of America
Merrill Lynch to divest the workplace unit after concluding the
service business no longer fit with Johnson Controls' business
portfolio, which also includes replacement batteries for
automobiles and car seats. Johnson Controls acquired the business
in 1989 from airline Pan Am Corp.
Since becoming CEO in 2013, Mr. Molinaroli sold the company's
automotive electronics unit, reaping $700 million from Gentex Corp.
and $265 million from Visteon Corp. The company last year announced
the spinoff a majority of its automotive-interiors business to
Chinese supplier Yanfeng Automotive Trim Systems Co.
Johnson Controls is waiting for regulatory approval of a joint
venture with Japan's Hitachi Ltd. to broaden JCI's product lines in
air conditioning and gain greater access to Asian markets. Mr.
Molinaroli said the company remains on the prowl for acquisitions
to complement its core business operations.
"We're looking at more investments than disposals," he said.
"We'll be looking to make more and more strategic acquisitions.
There are plenty of opportunities."
Chelsey Dulaney contributed to this article.
Write to Bob Tita at robert.tita@wsj.com
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