Tyco International Ltd. shares surged nearly 12% Tuesday as investors took heart that a massive internal probe failed to find any significant accounting fraud during the regime of indicted former Chairman L. Dennis Kozlowski.
"The lawyers and forensic [accounting] teams were playing the role of bomb-sniffing dogs, and they confirmed that there are not any bombs to defuse," said Glenn Reynolds, a credit analyst at research firm CreditSights Inc.
Investors, meanwhile, shrugged off Tyco's disclosure that it faces a looming funding shortfall of $3.6 billion at the end of 2003, which is more than double previous company estimates.
Shares of the Bermuda-based conglomerate rose $1.73 to $17.08 in New York Stock Exchange trading Tuesday. But the stock tumbled 71% in 2002, hurt by accounting worries and criminal charges against three former senior executives and a former director who pleaded guilty to hiding a $20-million payment from other board members.
However, not everyone was upbeat about the investigation overseen by lawyer David Boies.
David Tice of the Prudent Bear Fund said the report highlighted the existence of a corporate culture within Tyco that openly encouraged managers to push the rules of accounting to mislead investors about the company's results.
Tice, a short seller who has bet that Tyco shares would fall, said Boies reviewed 15 major acquisitions by Tyco, but the company made more than 700 during the review period. Tice said the study was not sufficient to determine the size of the problem.
Tyco's release late Monday of its internal investigation revealed accounting errors but the probe uncovered no significant or systemic fraud, Tyco said.