Tyco slashes jobs, facilities

Monday, December 1, 2003

NEW YORK - Another round of massive cuts, this time targeting the company’s fire and security operations, was handed down by top management at embattled conglomerate Tyco International in early November, although industry analysts agreed that the planned divestitures would have little effect on the company’s core life safety operations.

Tyco’s $10.6 billion Fire & Security division, which encompasses brands such as ADT, SimplexGrinnell, DSC, Sensormatic, as well as Scott protective equipment for firefighters and Ansul fire extinguishers, will bear the brunt of the downsizing. That division stands to lose 5,000 of the company-wide layoffs of 7,200 employees. Tyco will also sell off 50 businesses through the restructuring plan, with more than half of those coming from the Fire & Security division. The company has 59 such companies in that division listed on its website.

While Fire & Security is in store for significant changes, analysts expect some key brands will remain untouched.

“They’re not selling Sensormatic here or any significant piece of ADT,” said John Mack, industry analyst and president and chief executive officer of USBX Advisory Services.

“Tyco believes its extensive restructuring of its Fire & Security business can enable this unit’s operating margins to return to 14 to 16 percent, up from 8.1 percent in the most recent 4QFY03,” said Prudential Equity Group analyst Nicholas Heymann in a recent report. Tyco is targeting $240 million of the $400 million it estimates it will cost for the restructuring to eliminate 184 Fire & Security facilities, 15 of which are manufacturing plants. Those cuts make up the majority of planned facility closures, which will number 219. Officials would not comment on what product lines would be affected.

Instead, Tyco executives said that those businesses that will be exited are small, ancillary parts of Fire & Security and of the company’s two other divisions. Except for Tyco’s Global Network, an undersea fiber optic telecommunications network, the largest company that will be sold had less than $400 million in annual sales.

“The steps we announced to divest non-core businesses will serve to strengthen the company by allowing us to sharpen our focus on our key business areas,” said Gary Holmes, Tyco spokesperson. “This is part of our plan to transition from an acquisition-focused enterprise to a high-performing company.”

Speculation over which businesses will be included in the housecleaning include many international businesses, such as a company called FuelQuip, an Australian company that distributes gasoline in Australia and New Zealand.

“I think there were a lot of service things that are not related to Fire & Security, things that were purchased as part of their other acquisitions,” said Lee DeVito, president of Fire Pro Inc.

In fact, the changes are viewed by some not as negative news for the fire and security market, but more of a refinement of Tyco’s focus on core market segments within the Fire & Security division.

“The renewed focus, in my mind, is good for the industry,” Mack said. “It’s not good for the industry to have the leading player experiencing a lot of duress.”

For Tyco, which is currently watching the trial of its former chief executive officer and chief financial officer on charges that the pair bilked the company out of more than $600 million, this recent round of divestitures is expected to save the company $230 million a year until 2005.
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