The (Merger) Road Less Travelled

I read the news about the Johnson Controls/Tyco merger with interest this week.  I’ve worked with people at JCI since my early career at Michelin, and more recently with the innovation team in their historic Third Ward location in Milwaukee. 

Here are two quotes from the Wall Street Journal that caught my eye:

“…Monday’s deal…comes as both companies look to boost their stock prices in the face of slowing industrial activity.”

“The companies said the merged entity would save at least $150 million a year on taxes and at least $500 million in costs over the first three years after the completion of the deal.”

Contrast this with the news of Royal Dutch Shell’s acquisition of natural gas producer BP Group.  Here’s what Shell had to say:

“Shell’s move isn’t just a $50 billion bet on gas but also a wager against crude oil as the energy industry’s future, Maarten Wetselaar, the chief of Shell’s newly created gas division, said in an interview.

‘We’ve been looking forward to being able to say we destroy our business with a new business,’ Mr. Wetselaar said.”

Shell investors weren’t crazy about the deal – nearly 17% of shareholders voted against it, with one large investor calling it “value destructive.”  I certainly don’t have all the facts, but I am so impressed with the strategic intent of positioning Shell for a future where oil will undoubtedly face mounting challenges - climate change among others.  How many companies – how many leaders – have the courage to destroy their business with a new business?

I would love to think that the smart, inventive people at JCI have some ideas that could change the future of their growth prospects.  Most likely those ideas are underfunded and face a mountain of challenges competing with the core business.  But investors aren’t usually patient, and $650 million in savings sounds too good to pass up.  I find this situation so regrettable, and yet all too familiar.

I take heart from Shell, for taking the road less travelled.