Tyco Wins Approval for CIT Public Offering
Tyco International Ltd. won government approval Wednesday for an initial public offering of its CIT Group Inc. unit, a deal that could raise as much as $5.8 billion for the cash-strapped company.
The Securities and Exchange Commission approval came after Tyco agreed that CIT would slice the value of goodwill on its books by $4.5 billion, reducing the value of Tyco’s investment. Goodwill is the difference between what a company paid for an asset and what it is worth.
The IPO is seen as crucial to Tyco because the Bermuda-based company needs to pay more than $8 billion in debt through next February.
Moody’s Investors Service on Wednesday cut the company’s credit ratings to “junk,” or below-investment-grade status, and Standard & Poor’s said it might follow suit if the CIT deal isn’t completed within two weeks.
“Once you sell CIT, the liquidity issues will look a little better,” Mark Demos, an analyst with Fifth Third Investments, told Bloomberg News.
Tyco--whose products range from medical supplies to burglar alarms--has lost about $100 billion in market value since the beginning of the year amid investor worries about its debt obligations and corporate strategy.
Tyco shares fell 90 cents to close at $10.15 on the New York Stock Exchange before the SEC’s announcement, but news of the regulatory approval pushed up Tyco’s stock $2.35, or 29%, to $13.10 in after-hours trading.
Tyco, which bought CIT for $9.5 billion a year ago, said it will restate earnings for its second quarter, which ended March 31, and take a $4.5-billion goodwill charge for the IPO.
Tyco International Group, the unit that sells most of Tyco’s debt, had its credit rating cut to Ba2, or “junk,” from Baa3, the lowest investment grade. The ratings might be cut further, Moody’s said. Tyco International Ltd. is rated Ba1.
The credit rating cut means Tyco could be forced to repay $223 billion of yen-denominated debt because of so-called triggers contained in lending agreements, Moody’s said.
Tyco also is under SEC investigation for alleged misuse of loans by ousted Chief Executive L. Dennis Kozlowski, who was indicted for tax evasion last week.
The SEC had held off approving the IPO while it questioned the finance company’s goodwill accounting, sparking concern that the offering might be delayed beyond Tyco’s self-imposed deadline of June 30.
Tyco’s interim chief executive, John F. Fort, said Friday that the SEC delay might push the sale into July.
Tyco spokesman Gary Holmes was not available for comment.
Tyco now can send out prospectuses for the offering to investors and plan for a series of meetings with investors in Europe and the United States to promote it.
Tyco plans to sell 200 million shares for $25 to $29 each, according to the company’s IPO filing.
Goldman Sachs & Co. and Lehman Bros. Holdings Inc. are managing the IPO with J.P. Morgan & Co. and eight other banks.
