Market gives thumbs up to possible Tyco division sale

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Thursday, January 12, 2006

PRINCETON, N.J.--After a year in which Tyco's stock plunged 20 percent, the stock market reacted positively this week to an announcement that the conglomerate would sell off its healthcare and electronics businesses to focus on its security, fire and valve pump businesses.
The Wall Street Journal reported that the Tyco board will vote on the split today, Jan. 12, in Bermuda. The report also said Tyco's chief executive officer Edward Breen would continue to run the security, fire and valve pump businesses.
Sheri Woodruff, Tyco vice president of media relations would not comment on the report or confirm that the board meeting was taking place.
Industry analyst Jack Mallon managing director of Mallon Associates said, "I think it's a positive step on the part of the company, because it brings it closer to a pure play security (and fire) company. It should result in greater focus and concentration on those areas."
He cautioned, however, that the sale itself does not fundamentally change the company. "The key is whether this will serve as catalyst for them to expand their security operation either organically or through acquisitions."
To really be a positive step, Mallon said, the sale needs to be more than a "financial maneuver."
After the rumors of the sale surfaced on Jan. 9, Tyco's stock price spiked. Mallon pointed out that the market reacted quite 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. 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 the conglomerate'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.
The market's been waiting for a new direction from Breen, Mallon said, and this move may signal that Tyco is ready to move ahead with a new strategy.
See the February issue of Security Systems News for an update on this story.