Johnson Controls has joined a steady stream of general industrial companies seeking to demerge businesses by considering “strategic options” for its core automotive business.
A sale or spin-off of the automotive business — which is the world’s largest manufacturer of car seats — would leave Johnson Controls focused on its building efficiency and power solutions units.
The building efficiency unit makes air-conditioning and equipment to control large buildings, and the power solutions division manufactures vehicle batteries.
Alex Molinaroli, chief executive, told investors on a conference call on Wednesday the group was unwilling to provide the capital the business needed to develop new products.
“From a strategic standpoint, for the rest of Johnson Controls this makes a lot of sense,” he said
Goldman Sachs and Centerview Partners have been appointed financial advisers.
The move continues a trend for general industrial companies to seek spin-offs or sales of businesses that managers consider undervalued.
Michelle Krebs, an analyst at Autotrader.com, said many people considered the highly cyclical US auto industry to be nearing its peak. The depth and duration of the subsequent downturn would be unpredictable, she added.
Matt Stover, an analyst at Guggenheim Partners, said Johnson had been seeking to reallocate capital away from automotive since Mr Molinaroli took over in 2013.
But the process would be complicated because the seating business was the world’s largest and had two important joint ventures. The company is China’s biggest supplier of car seats through an arrangement with Yanfeng Automotive, while it also participates in a joint venture with Japan’s Toyota Boshoku.
Mr Stover said neither of the partners were likely to have the capital to buy out the entire division. A possible buyer is Spain’s Grupo Antolin although it is in the process of buying the interiors business of Canada’s Magna.
There are questions over which parts of the business could be spun off. The company said in May 2014 it was forming a joint venture with Yanfeng in automotive interiors, a transaction that has yet to close.
Automotive interiors contributed $4.5bn of Johnson Controls’ $38.7bn sales in the year to September 2014, while seating contributed $17.5bn.
Mr Molinaroli said there was “no one option” as to whether the stake in the interiors joint venture would be spun off with seating.
This article has been amended. Grupo Antolin is buying Magna’s interiors business, not its seating business.