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Bad Divorce: Auto-Parts Makers Part Ways; Who Will Get the Factory?

Grounds for divorce.
It seems like Franco-American rifts are the order of the day. Former IMF head Dominique Strauss-Kahn has just been indicted in New York on sexual assault charges. Meanwhile, in the auto world, Johnson Controls (JCI), one of the few companies in the auto industry that hasn't experienced a brush with death in the past few years, is escaping a joint venture with French battery maker Saft. In both cases, the French are very unhappy with the Americans.

Business over friendship
JCI's motives are pretty clear. It took advantage of the JV to build up its lithium-ion battery and hybrid electric applications and to gain access to Saft's markets. Now it wants to beyond the strategic limits of partnership to continue broadening its business into other sectors -- particularly energy.

That's the company line, in a nutshell. More bluntly, JCI doesn't want to just play with cars anymore.

Also complicating the matter is a plant in Michigan that was both part of the JV and the beneficiary of a $299 million loan from the Department of Energy. It's not clear what the fate of that facility will be. But the lawyers are already in action. For its part, Saft doesn't want to see the venture, formed in 2006, to be terminated.

I feel so used
Circumstantially, it does look as if JCI used the JV -- called Johnson Controls-Saft Advanced Power Solutions LLC -- to leverage its way into the hybrid and electric-vehicle game, then decided to go after markets that Saft wants to keep for itself. But you could just as easily say that Saft doesn't want to share.

Here's the lowdown, from Green Car Congress:

Johnson Controls says that it believes that as vehicle power train technologies continue to evolve and new markets emerge for advanced batteries, it must have access to multiple alternative technologies and be able to flexibly participate more broadly across the energy storage space.
Plus a statement from Alex Molinaroli, the President of Johnson Controls Power Solutions, included in the report:
Johnson Controls and Saft have a fundamental disagreement about the future direction and appropriate scope of the joint venture. The industry is evolving rapidly and the investments needed to achieve market leadership require us to do more than the joint venture has done or can do. This action reaffirms our strategic commitment to the advanced battery industry.
No slips allowed
Regardless of who's stepping on whom here, JCI is determined to extend its reputation as an industrial company that's long been tied to the auto industry but doesn't want to be bound by the cyclical ups and down of carmaking.

This is why it's arguing that the JV is hemming it in. According to analyst David Leiker of Baird Equity Research, who published a note on Wednesday:

Dissolving the joint venture should allow Johnson Controls to pursue a broader range of market opportunities utilizing a range of battery chemistries; the joint venture restricted the battery opportunity to automotive end markets, utilizing Saft's technology.

Additionally, Johnson Controls now can invest and scale the business according to their expectations in order to capitalize on the ultimate market opportunity.

This is always the tricky thing about JVs: they're good for both parties until the suddenly aren't. Then the divorcing begins. But it's to JCI's credit that it's being strategic now rather than becoming preoccupied with a JV that was forcing it to be a niche player.


Photo: JCI Media
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