Tyco to Split Into 4 Units

Tyco International Ltd., bowing to shareholder demands for greater transparency in accounting, said it plans to split into four companies and shed $11 billion in debt.

“It’s absolutely surprising,” said Mark Demos, an analyst with Fifth Third Investment Advisors, which owns Tyco shares. “It goes against the grain of Tyco’s message over the past decade.”

The breakup reverses the strategy of Tyco Chief Executive Dennis Kozlowski, who oversaw $64billion in acquisitions and whose methods were compared with General Electric Co. Kozlowski will head the electronics and security-systems company that remains after Tyco spins off its health care, fire protection and flow control, and financial services units.

Tyco, which is based in Bermuda and run from Exeter, N.H., was the subject of criticism from some analysts and investors who said the company manipulated its accounting for acquisitions to mask slowing growth in its business.

“Our job is to deliver shareholder value, not wait around to be vindicated,” Kozlowski said.

Enron Corp.’s accounting lapses and failure may have forced Tyco to take the steps to boost its stock price after losing $25 billion in market value since December, investors said. Proceeds from transactions and the sale of Tyco’s plastics business will be used to repay some of the company’s $79 billion in debt.

“A lot of people are suffering [because of] Enron,” Kozlowski said. “The thing that brought down Enron was rogue financing off the balance sheet. There’s none of that at Tyco.”

Tyco shares rose $1.10, or 2.4%, to $47.55 on the New York Stock Exchange after rising as high as $52.55. The company’s 6.38% bonds maturing in 2011 rose $59 to $1,008 to yield 6.27%, traders said. That’s down from 7.11% on Friday.

Revelations that Enron’s auditor knew of irregularities at the energy trader before its collapse have fueled doubts among some investors about the reliability of corporate financial statements. In July 2000, Tyco said the Securities and Exchange Commission ended a probe of its accounting and took no action after Tyco made some adjustments.

“Management has been frustrated by the [stock’s price-to-earnings] multiple and the level of rumors out there,” Demos said.

The company had considered the breakup even when the stock was trading in the mid-$50s. Breaking up Tyco probably will increase the share price and address the accounting concerns, Kozlowski said.

“The four independent entities will have far greater clarity, far greater transparency, because they’re smaller units in accounting and every other matter,” Kozlowski said.

Money manager David Tice was the first to challenge Tyco’s accounting in October 1999. Tice, who runs the Prudent Bear fund through Dallas-based Tice & Associates, claimed Tyco set up reserves when it made acquisitions and used them to boost earnings later. Tyco denied the allegations.

Adding to investor concern was Tyco’s announcement Jan. 15 that its fiscal second-quarter profit will be less than analysts forecast because of falling demand from telecommunications and computer-networking companies.

Tyco will sell stakes of as much as 20% in three of the four units to the public and then distribute shares to existing investors. Terms of the distribution weren’t disclosed. Goldman, Sachs & Co. is Tyco’s financial advisor.

Tyco’s board would consider offers for all the businesses if potential acquirers expressed interest, Kozlowski said.