Talk of Tyco earnings and PULSE performance. Schneider rumors not addressed--directly anyhow


This morning’s Tyco International conference call started with a warning that it is Tyco’s policy not to respond to questions from the press or anyone else about rumors and speculations [ie talk of a Schneider takeover]. The speaker said there would not be any more comments on this issue today.

There were not any more comments directly on that issue today ... but Tyco chief Ed Breen did answer a questions from a JP Morgan analyst about his “philosophy on strategic corporate actions and how he looks at the company portfolio.” That’s not the exact question. It was something along those lines--a heapin’ helpin’ of corporate business speak, but it did elicit some sort of interesting thoughts from Breen about the three businesses that currently make up Tyco.

Breen said he’s very happy with the ‘07 split up of Tyco and the combination of companies that now make up Tyco International. “It’s a combinations that’s created value I’m very proud of ... we’ve got an all-time high stock price.” All three businesses are doing very well he said. “I love the status of the company and I love the mix of businesses.” They’ll continue to grow and play well in emerging markets, he said. He did add that “we always present to our board all alternatives ... for long term [options] to sustain shareholder value.”

During the past several weeks when rumors of Schnieder making a play for Tyco started to make the rounds, UTC was also mentioned as a possible suitor for Tyco. Some analysts speculated that Tyco was being shopped around. While Schneider issued a statement saying they’re not currently in talks with Tyco, UTC did not comment directly.

Bloomberg reported comments from UTC CFO Greg Hayes on April 20, however, which certainly cast doubt on UTC's interest.

From the Bloomberg report: “I can’t say anything specifically about any particular acquisition target,” Chief Financial Officer Greg Hayes said today in an interview. “I will say it’s very difficult for any U.S. multinational to acquire a company based in Switzerland where the tax rate is 15 percent and our rate, the U.S. statutory rate, is 35 percent.”

Ben Harrington of the UK Daily Telegraph had some interesting speculation on what may have happened with Schneider. Maybe they got mad and called off talks—for right now anyway.

This is from a Harrington column more than a week ago,  “French companies do have a track record of doing that. Last year, for example, GDF-Suez publicly called off its deal talks with London-listed International Power in January after news of the discussions leaked in December 2009. A few weeks later both companies were back in negotiations and a formal transaction was announced to the market .... I suspect the French [Schneider] will get over their temper tantrum over the next few weeks and then talks with Tyco will re-start. Whether a deal ever gets done remains to be seen - it's a difficult market to get transactions over the line.”

OK, back to the earnings call, another analyst asked—in not so many words of course—about the Flow Control business possibly being sold off at some point.

Could the flow business (theoretically of course) be monetized in a way to avoid cost leakage? he asked. After reiterating that he likes how the Tyco portfolio looks right now, but that he and the board are always looking at alternative ways to create shareholder value, Breen said yes. There are always “creative ways to structure deals” and held up the sale of the Electrical and Metal unit as an example of that could be done.

And news on the actual quarterly earnings...a very good quarter for Tyco International.  In the security business: “Revenue of $2.1 billion increased 12% in the quarter with organic revenue growth of 5.5%.  Recurring revenue grew 4.5% organically with growth in all geographic regions.  Non-recurring revenue grew 7% organically led by increased volume in the North American commercial business.”

Here’s an Bloomberg summary  and the actual Tyco press release. 

And one more interesting point that the earnings call touched on this morning: ADT’s PULSE product. Breen had this to say: Only the internal sales team (which makes up about half of the sales team, the other half are the dealers) is currently selling PULSE, but official figures show about 15 percent of customers are buying the PULSE product. However on the “back half the quarter that’s starting to move up to 18 percent,” he said. There are three levels of the PULSE product and 80 percent are taking the first level [least expensive] package.

RMR associated with PULSE accounts is $50, without PULSE $43, ADT heritage accounts $36 and Broadview heritage accounts $33. “The next step is to get the dealers trained up by ’12 and get them cranking along,” Breen said. In the future, the plan is to go back to the $33 and $36 accounts and remarket the PULSE product. Breen also said they company is taking a look at how the PULSE product may “play out in the commercial base, in the small- and mid-tier business base. It’s one thing we’re intrigued with ... we’re working on it but not talking about launching it yet.”