Tyco Shares Plunge Over CIT Deal, Widening Investigation

Tyco International Ltd.’s shares plunged 31% on Friday as the conglomerate’s problems worsened with a report of a widening criminal probe into whether executives used the company’s cash to buy art and homes, and a possible delay of a crucial sale or stock offering of its CIT Group finance arm.

Shares of Tyco fell $4.50 to $10.10 on the New York Stock Exchange, their lowest level in nearly six years. The drop accelerated a precipitous decline that has erased nearly $100 billion in shareholder money since the beginning of the year--more than was lost in the collapse of energy giant Enron Corp.

Also Friday, Moody’s Investors Service and Standard & Poor’s cut their rating in Tyco’s debt to one notch above “junk,” triggering a clause in its financing agreements that requires repayment of at least $530 million in debt.

S&P;, which also downgraded CIT Group, said Tyco had about $4 billion of cash March 31-- enough to refinance debt that would come due immediately if Moody’s or S&P; cut Tyco to junk.

Tyco, reeling from the indictment and resignation of Chief Executive L. Dennis Kozlowski, carries $23 billion in debt and is scrambling to sell CIT to pay $3.25 billion due early next year.

“Things can definitely worsen from here, and I think they will worsen because they have real balance-sheet issues and they have zero credibility,” said Rob Plaza, an analyst at fund research firm Morningstar.

The company has failed to find a buyer for CIT even at “fire sale” prices. Tyco bought CIT last year for $10 billion and is expected to recoup only about half that amount. Last month, it failed to clinch a deal to sell CIT to investment bank Lehman Bros. for $5 billion.

Kozlowski’s indictment on tax evasion charges has led to a broader inquiry into whether the company used its money to buy homes and artwork for executives without telling shareholders, the Wall Street Journal reported.

“If the CEO would take those kind of risks in his personal life, then you could make the assumption that he was acting that way at the company,” Plaza said.

Tyco said it was committed to completing an initial public offering of CIT “as expeditiously as possible.” But it did not follow its recent custom of forecasting that the CIT float would occur by the end of June.

The Securities and Exchange Commission, which was expected to sign off on the CIT share offering as early as Thursday, probably won’t approve it this week, sources told Reuters.