Inheriting a problem?

December 12, 2005

On Friday, the same day that Johnson Controls (JCI) announced that it had completed its $3.2 billion acquisition of York International (YRK), there was an interesting legal disclosure buried in the 10-K that Johnson Controls filed that same day.

A subsidiary of York is alleged to have paid nearly $650K in bribes to obtain $7.2 million in contracts as part of the Oil-For-Food scandal that’s roiling the United Nations. Though this was disclosed in a Q filed by York last month and although York is one of 2,200 companies touched by the scandal, this is the first time that Johnson Controls disclosed the problem in one of their filings. In Johnson’s K, the company notes that York has conducted a preliminary investigation and that representatives of York and Johnson Controls have met with the Department of Justice and the SEC to discuss the investigation and are cooperating fully. But the filing makes no note of whether the issue is material or how much this problem is likely to cost in either money or bad publicity.

But given that York’s stock climbed nearly 30% when the acquisition was announced on Aug. 24, if this problem turns into something bigger or more complicated, it could wind up meaning that Johnson overpaid.

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