Tyco May Be Split Into 3
Tyco International Ltd.’s board voted to split into three companies, dismantling the conglomerate built by jailed former Chief Executive L. Dennis Kozlowski, a person familiar with the decision said Thursday.
Tyco’s healthcare and electronics units will be spun off to investors and current CEO Edward Breen will stay on to run the remaining businesses, which include fire and security, the person said after a board meeting in Pembroke, Bermuda, where the company is based. Tyco spokeswoman Sheri Woodruff declined to comment.
Breen spent more than three years reducing debt and selling businesses as Tyco sought to recover from a corporate fraud scandal. He cut earnings forecasts twice in 2005 after promising to deliver growth, fueling investor impatience. The shares dropped 23% last year until November, when Breen said he was considering a split. The spinoffs will take at least 12 months to complete, the person said.
“This was a company that never really got the benefits of being a conglomerate,” said Steve Hoedt, an analyst with National City Corp.
Shares of Tyco, run from West Windsor, N.J., fell 3 cents to $30.31. They have climbed 11% since Nov. 16, when Breen said Tyco was considering a breakup.
The healthcare and electronics units will remain in Bermuda, the person said.
Tyco’s board believes that the units will be better able to use capital and grow as stand-alone companies in the next three to five years, rather than have to remain a certain size within Tyco’s portfolio of businesses, according to the person. Healthcare, for instance, will be able to control its own research and development budget.
Tyco Healthcare, with about $9.5 billion in sales, is the world’s second-biggest maker of disposable medical supplies behind Johnson & Johnson. The electronics business, the largest maker of connectors used by automobile makers, accounted for about $12 billion of Tyco’s $39.7 billion in revenue for the fiscal year ended in September.
Tyco joins Viacom Inc., Cendant Corp. and Primedia Inc. as companies that in the last year abandoned a strategy of aggregating disparate businesses.
“Most people are of the view that this is long overdue,” said Frank Aquila, a mergers partner at New York-based Sullivan & Cromwell. “It probably would have happened a few years ago had there not been the criminal and accounting issues around Tyco.”
Kozlowski, 59, attempted to break up the company in 2002 under a proposal drafted by Goldman, Sachs & Co., a plan later withdrawn amid skepticism among investors about Tyco’s accounting and management. He built Tyco through $60 billion in acquisitions over more than a decade, before being convicted of looting the company and deceiving its shareholders.
