Divvying up Tyco International

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Wednesday, February 1, 2006

PRINCETON, N.J.--In a move that industry analyst Jack Mallon predicted could bring a long awaited "new direction" for the company, the Tyco Board of Directors approved a restructuring that will divide the conglomerate into three separate publicly traded companies.
The Jan. 13 announcement came as Security Systems News went to press. Tyco Fire & Security and Engineered Products and Services division will be led by Tyco chairman and chief executive officer Ed Breen and Chris Coughlin, the chief financial officer of Tyco International. Dave Robinson will continue to serve as president of Tyco Fire & Security. Naren Gursahaney will succeed Tom Lynch as president of engineered products and services. The other two divisions will be Tyco Healthcare and Tyco Electronics.
The one-time cost of the break-up will be $1 billion, most of which is tax and debt refinancing costs, the company release said.
"We believe this separation is a logical next step in Tyco's evolution and we are absolutely convinced that this is the right decision for the long-term success of our businesses, employees and shareholders," Breen said in a written statement.
Industry analyst Jack Mallon, managing director of Mallon Associates, said the decision brings the company "closer to a pure play security [and fire] company. It should result in greater focus and concentration on those areas."
To really be a positive step, Mallon said, the restructuring needs to be more than a "financial maneuver."
"The key is whether this will serve as catalyst for them to expand their security operation either organically or through acquisitions."
After the rumors of the sale surfaced on Jan. 9, Tyco's stock price spiked. The market reacted differently in the spring of 2002 when former Tyco chief executive officer Dennis Kozlowski announced a similar plan. "The market did not react positively during that go-round," said Mallon. "The stock plunged by 50 percent...although at that time the company was embroiled in a whole series of other corporate relations and government problems."
During Tyco's salad days, Kozlowski, nicknamed "Deal a Day Dennis," oversaw Tyco's expansion into the security business including the purchases of ADT, Sensormatic, Tri-Ed Distribution and DSC.
Tyco experienced some dark times following Kozlowski's June 2002 resignation: sinking stock prices, a lay off of 7,100 employees and the closure of 24 locations.
Following this, the company divested some of its non-core fire and security related companies. Kozlowski and his finance chief Mark Swartz were convicted of fraud in June of last year.
In the post-Kozlowski era, the market's been awaiting a clear indication that Breen will move ahead with a new strategy. The January announcement may be the signal they've been waiting for, Mallon said.