Johnson Controls Inc. and Tyco International PLC are in advanced talks to combine, according to people familiar with the matter, in a deal that could value Tyco as high as $20 billion and signal that companies are still willing to embark on large mergers despite being shaken by recent market volatility.

The agreement, details of which could be announced as soon as Monday, comes as both companies struggle to bolster their stock prices.

While exact terms couldn't be learned, Johnson Controls has a market value of about $23 billion, while Tyco's was about $13 billion as of Friday's close. A deal could value Tyco at between $15 billion and $20 billion.

Johnson Controls, based in Milwaukee, produces auto seating and heating, ventilation and air-conditioning equipment, and replacement batteries for cars, among other things.

The company's shares have been hit in the past year amid concerns about its growth, falling by more than 20%. Shares of Tyco—based in Ireland and with a U.S. headquarters in Princeton, N.J.—meanwhile, have fallen by more than 25% in the same period.

Should a deal come to fruition, it would signal that recent waves of selling in markets for everything from oil to stocks haven't derailed the historic mergers-and-acquisitions boom that drove M&A activity to a record high of $4.7 trillion last year, according to Dealogic.

Although takeover activity had gotten off to a relatively slow start this year, the deal could signal that companies are still willing to attempt the big takeovers that characterized last year's surge.

It also is conceivable that it could be structured as a so-called inversion, a type of transaction that has become popular—and controversial—in recent years. Inversions typically take the form of a U.S. company acquiring a foreign-based rival and assuming its lower-tax domicile.

U.S.-based companies that have acquired other foreign-based Tyco businesses in recent years have switched their corporate registries to take advantage of the favorable tax status.

As part of an effort to boost Johnson Controls stock, Chief Executive Alex Molinaroli has been pivoting the company away from low-margin automotive markets to try to become a more profitable "multi-industrial" company.

Mr. Molinaroli, who became CEO in 2013, has said he wouldn't rule out acquisitions to expand the company's industrial reach. If a deal is completed, it would be the largest in Johnson Controls' more than 100-year history.

It is expected that Mr. Molinaroli would run the combined company, according to one of the people familiar with the matter.

Mr. Molinaroli has been planning to spin off the company's automotive-seating business this fall, its largest unit and the world's biggest competitor in that segment. It is unclear how a Tyco pact would affect those plans.

When Edward Breen took over for former Tyco CEO L. Dennis Kozlowski before Mr. Kozlowski was convicted in 2005 and later served prison time for looting his employer—he began disassembling the serial acquirer's former empire.

In 2007, Mr. Breen broke up what was then a company with nearly 240,000 employees by spinning off medical-products company Covidien PLC and electronics-component maker Tyco Electronics Ltd. Medtronic Inc. last year bought Covidien for about $40 billion.

Today, Tyco focuses on fire, security and video surveillance for commercial buildings through brands such as American Dynamics, Chemguard and Sensormatic. Tyco has had slowing sales growth in recent quarters and its sales and profit outlook for 2016 lagged behind analysts' expectations.

Mr. Breen remains on Tyco's board of directors and serves as its chairman. He has been busy on the M&A front of late, as chemical giant DuPont Co., where he recently became CEO, in December struck a landmark merger agreement with Dow Chemical Co.—a $120 billion transaction that would be followed by a three-way split of the combined company.

It is unclear what the board composition of a combined Johnson Controls-Tyco would be and whether Mr. Breen would have a role.

With Tyco's security and fire suppression business lines, Johnson Controls would expand its equipment and services for commercial buildings where developers and building managers often look for suppliers with broad product lines. The company already provides heating and air conditioning gear under the York brand and climate-control systems.

Johnson Controls has been interested in acquisitions to complement its businesses and replace lost revenue from the spin off of the seating business. But analysts expected the company to continue its recent practice of adding smaller acquisitions and joint ventures.

The combination would come on the heels of Shire Plc's agreement this month to buy drugmaker Baxalta Inc. for $32 billion—though that was publicly in the works for months. It also would follow a series of comments from corporate and bank chief executives who have indicated that despite market gyrations, the underpinnings of a strong M&A market remain intact.

One way companies could continue agreeing to merge through the volatility is by swapping shares if both stocks have fallen by comparable amounts. Indeed, the Johnson Controls-Tyco deal would involve at least a partial share swap, according to one of the people.

Bob Tita contributed to this article.

Write to Dana Mattioli at dana.mattioli@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Michael Siconolfi at michael.siconolfi@wsj.com

 

(END) Dow Jones Newswires

January 24, 2016 20:55 ET (01:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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