US-based Johnson Controls and Japan’s Hitachi Appliances have formalised their agreement to form a joint venture that will acquire Hitachi Appliances’ global air-conditioning business. The deal was announced in December 2013 and was to have started operations in 2014, but its closure has stretched all the way till 2015.
This transaction has a local effect, as it will change the ownership of India’s Hitachi Home & Life Solutions (India), a 74.25% subsidiary of Hitachi Group. Its share rose by 20% on Thursday, as investors are jumping in, to make a quick buck in open offer. If the transaction does necessitate an open offer, there are exemptions available depending on the structure of the transaction, the offer price will determine if shareholders get a windfall.
The open offer process is made complicated by the fact that Hitachi’s stake is already just short of the 75% maximum limit for promoter-ownership in listed companies. Promoters typically either have to buy out all shareholders and delist, if it crosses this threshold, or sell down the excess stake to remain compliant.
The broad contours of the global transaction are the same as announced in 2013. Hitachi said that their agreement will see Johnson Controls will acquire a 60% stake in Hitachi Appliances’ business with revenues of $2.6billion or Rs 16,016 crore. This joint venture will add Hitachi’s global air-conditioning products such as variable refrigerant flow technology, inverter technology-based room air-conditioners and chillers. These are complementary technologies that Johnson Controls expects will drive its growth in Asia.
No specific details have been given for the financial side of this venture, especially how much Hitachi will receive for transferring the acquired business to the joint venture, in addition to retaining a 40% stake in the business. But Indian investors in Hitachi Home& Life will be more interested in news of an open offer and whether the offer price is at a premium to levels prevailing before the deal was formalised.