Tyco International Ltd. on Wednesday agreed to buy Mallinckrodt Inc. for about $3.2 billion, just days after saying that regulators requested only minor changes in how the company accounts for acquisitions.
Tyco will exchange $47.50 in stock for each share of the medical device maker, or about 51% more than Mallinckrodt’s closing price Wednesday. Tyco, the world’s biggest maker of electronic connectors, also will assume about $1 billion in debt.
It is the largest purchase by Tyco since analyst David Tice suggested in October that the company had used reserves set up while making acquisitions to boost earnings.
With the Mallinckrodt purchase, Tyco is getting the world’s largest maker of respiratory monitoring equipment as well as a pharmaceutical business.
“It gives them new products they can put into their existing distribution,” said Phua Young, an analyst at Merrill Lynch & Co., who has a “strong buy” rating on Tyco. “This is Tyco at its best.”
The acquisition of the St. Louis-based company will add about 6 cents a share to earnings in the first year after the transaction is completed and 10 cents in the second year, Tyco Chief Executive Dennis Kozlowski said in an interview.
Tyco fell $1.88 to close at $45.50 on electronic networks and regional exchanges after the close of regular trading on the New York Stock Exchange. During the regular session, it fell $1 to $46.31. Mallinckrodt leaped $16.25 to $45 in after-hours trading, after rising $2.63 to $31.38 earlier.
Tyco becomes the second-largest maker of medical devices behind Johnson & Johnson through the transaction, analysts said. The company is already the world’s biggest maker of undersea fiber-optic cable, fire prevention and security systems as well as industrial valves.
Tyco usually buys companies that immediately add to profit. Unlike the company’s other recent multibillion-dollar purchases, this acquisition will be accounted for under the purchase method.
The company said Monday that it would shift some acquisition charges to different quarters to satisfy the Securities and Exchange Commission. The company said the changes will not affect profit from operations. Kozlowski said the timing of the Mallinckrodt purchase was not dependent on the SEC review.
The market value of Tyco had dropped by as much as $40 billion after Tice’s comments. Tyco, based in Bermuda but run from Exeter, N.H., has made more than $30 billion in purchases in a three-year period.
Tyco expects in incur pretax costs of about $250 million for the consolidation of plants and severance payments related to the Mallinckrodt purchase, Chief Financial Officer Mark Swartz said. The company did not say how many jobs might be cut.
Tyco’s Kozlowski also said the company wants to sell shares in its TyCom undersea fiber-optic cable-making unit to the public by the end of July. Tyco said in May that it planned to sell shares in TyCom.