Tyco to Cut 7,200 Jobs, Divest Units
Tyco International Ltd. said Tuesday that it would eliminate 7,200 jobs, exit more than 50 business lines and sell its undersea fiber optic cable network as it unwinds parts of the far-flung empire built by former Chairman L. Dennis Kozlowski.
Tyco also forecast double-digit earnings growth in the current quarter, sending its stock price up 7%.
The Pembroke, Bermuda-based conglomerate said it took a charge of $1.2 billion in its fiscal fourth quarter ended Sept. 30 for the restructuring and divestitures, leaving it with a net loss for the period.
Tyco Chairman Edward Breen, hired last year to replace Kozlowski, who is on trial on corruption charges, said the moves would increase the company’s ability to bolster profits.
The earnings forecast and a $500-million cash flow improvement, sparked investor enthusiasm, said John Boland, an analyst and fund manager at NL Capital Management, which holds an estimated 700,000 Tyco shares. “It shows that current management has a good handle on the business,” he said.
Tyco said the restructuring would include closing 219 manufacturing, sales, distribution and other facilities. The business lines being exited have annual revenue of $2.1 billion, or about 6% of Tyco’s total revenue base. The job cuts represent about 3% of the conglomerate’s workforce of 260,000.
Tyco did not specify which business lines it was exiting, besides the undersea network. But it said more than half of the divestitures, as measured by revenue, would come in the division that makes sprinklers, burglar alarms and fire extinguishers.
In a conference call, Breen promised investors and analysts “solid” results in 2004 but acknowledged a number of problems at Tyco operations that make everything from hospital supplies to burglar alarms.
For example, he said its ADT security business in Europe was “bleeding.”
“We know it will bleed through 2004 so we are looking at any other steps here,” he said after an analyst suggested shutting it down.
For the fourth quarter, Tyco posted a net loss of $297.1 million, or 15 cents a share, compared with a net loss of $1.4 billion, or 72 cents, a year earlier.
Among the businesses to be sold is Tyco Global Network, an undersea fiber optic cable business that has suffered billions of dollars of losses amid the telecommunications industry meltdown.
Excluding the undersea network, known as TyCom, Tyco expects to generate proceeds of at least $400 million from the divestiture program.
Billed as the largest in the world, the network’s market value soared in 2000 when Tyco sold a minority stake to investors through an initial public offering.
The sale of about 14% of TyCom generated a one-time gain of nearly $1.8 billion for Tyco. Manhattan prosecutors say Kozlowski used the successful IPO as justification to award nearly $100 million in bonus payments to himself and other executives and managers.
Tyco shares ended up $1.48 at $22.50 on the New York Stock Exchange.