Johnson Controls Inc is exploring a potential sale of its automotive interiors unit, a move that would allow the diversified manufacturer to focus on higher-margin building controls and next-generation car batteries, three people familiar with the matter said on Wednesday.
Shares of Johnson Controls were up about 6 percent to $33.74 on the New York Stock Exchange, valuing the diversified conglomerate at around $23 billion.
Johnson Controls, the largest U.S. auto supplier with sales of more than $4 billion in car interiors for fiscal 2012, has grappled with industry-wide pressure on margins, low vehicle production in Europe and increased competition from China.
A successful sale of the interiors division, which competes with rivals such as Magna International Inc and Faurecia , would leave Johnson Controls with three other major business: automotive seating, building controls and car batteries.
The company also joins a growing number of diversified conglomerates looking to exit businesses that generate poor returns or do not fit with their core operations.
The Milwaukee, Wisconsin-based company is being advised by investment bank JPMorgan Chase on the potential interiors divestiture, two of the people said, asking not to be named because the discussions are private.
Johnson Controls posted revenue of $42 billion its last fiscal year. Automotive seating remains its largest segment with roughly $16 billion in sales for its fiscal 2012 that ended in September.
Johnson Controls and JPMorgan declined to comment.
In October, Johnson Controls separated its car seating from its interiors and electronics businesses, saying that economic and competitive characteristics between seating, interiors and electronics are "increasingly different."
"If you look at those businesses, the business models, capital intensity, the manufacturing footprint requirements are very, very different. And we also wanted to bring more focus to each of those segments," Chief Executive Steve Roell said at that time.
The diversified manufacturer, along with the rest of the industry, has been battling to improve poor margins in car interiors over the past few years. Visteon Corp is also trying to exit its auto interiors business.
The company's fiscal 2013 year outlook called for electronics and interiors business margins of between 1.9 percent and 2.1 percent, and its mid-term outlook through 2017 called for those margins to rise to 6 percent to 7 percent.
In comparison, Johnson Controls' power solutions business - the world's largest provider of advanced batteries for vehicles - expects margins between 14.6 percent to 14.8 percent in its 2013 fiscal year and improvement in margins by 2 percentage points in its outlook to 2017.
Its building efficiency business expects 2013 margins of 6.4 percent to 6.5 percent.
(Reporting by Soyoung Kim in New York and Bernie Woodall in Detroit; editing by Carol Bishopric)