Why Did Johnson Controls Suddenly Decided To Separate Its Automotive Business?

Johnson Controls Inc (NYSE: JCI) announced on Wednesday that it is considering separating its automotive business unit, following which shares of the company gapped up at the opening and continue to trade higher.

Alex Molinaroli, Johnson Controls chairman, president and CEO, was on CNBC to weigh in on the company's decision to separate its automotive business.

Focusing On Segments That Will Move Us Forward

"The most important thing to understand is that we have an incredible franchise business in the automotive," Molinaroli began. "But in order for us to become a multi-industrial, truly to be a multi-industrial, it's been clear, it's becoming more and more clear that we need to focus on the segments that are going to move us forward as a company and allow the automotive business to have the investments it needs to be successful."

"We've been constraining capital, we've been making investments outside of automotive and we are going to make sure we don't hurt that business. It's a great business."

Related Link: UBS Upgrades Johnson Controls, Asks: 'Would Split Highlight Margin Story?'

Why Now?

Molinaroli was asked why the company is considering separating its automotive business when he has reiterated in past that the company is always going to be in the automotive business. He replied, "Well, I think what we're doing is recognizing in order for the business to compete we have to allow it to be successful."

"Just the timing of all this really relates to our strategic planning process and we look at our capital allocation, how we want to be perceived and then our other businesses. If you look at our other businesses, we have our franchise business in the building business, we have franchise business in our energy storage business and I think they're undervalued," Molinaroli said.

Shares traded recently at $54.27, up 5.2 percent on the day.