Tyco International to split into three companies | VailDaily.com

Tyco International to split into three companies

TRENTON, N.J. – Tyco International Ltd., still recovering from scandals that saw its longtime former chief executive sentenced to prison, said Friday it plans to split into three public companies.It is separating its electronics and health care businesses from its remaining operations, which include security and fire-protection services.The company, which may be best known for its ADT home alarm systems, also warned its first quarter and full-year 2006 earnings from continuing operations would be lower than expected. It estimated the cost of the breakup, planned for early next year, at $1 billion.Its shares tumbled $2.84, or 9.4 percent, to $27.47 in midday trading on the New York Stock Exchange.Tyco, which has its operational offices in West Windsor, said the breakup followed an extensive strategic review and will strengthen the businesses.”We believe that separation is a logical next step in Tyco’s evolution,” said Chairman and Chief Executive Ed Breen in a morning conference call. He said the board concluded the current structure was inhibiting growth possibilities of the health care and electronics businesses, both leaders in their respective fields.In a move expected to be completed in the first quarter of 2007, Tyco will separate the companies through issuing tax-free stock dividends to shareholders, who will own dividend-producing stock in all three companies.Each of the new companies, still based in Bermuda, will be governed by an independent board of directors who will continue to refine those portfolios with possible selloffs or acquisitions, Breen said.Tyco has been recovering from accounting scandals first revealed in 2002. Its former CEO and longtime leader, L. Dennis Kozlowski, and former Chief Financial Officer Mark H. Swartz were sentenced to prison last year for grand larceny, conspiracy, securities fraud and falsifying business records, and are appealing their convictions.”Over the past three years, Tyco has come a long way,” Breen said. “We have a strong and independent board, a rebuilt management team, outstanding corporate governance rankings and an operational culture that puts growth and operating excellence at the top of the management agenda.”In November, the company said it might split up its businesses to boost the value of the stock, and there had been reports this week that it was close to a decision. It also considered a breakup four years ago.Breen said Friday the board considered a range of options, including selling certain businesses, and separating only one of the operations.Tyco now expects first-quarter earnings, excluding one-time items, to be about 38 cents per share from continuing operations, down from its prior outlook of 40 cents to 42 cents per share.The firm lowered its full-year 2006 earnings forecast to a range of $1.85 to $1.92 per share from continuing operations. It previously expected earnings to increase by about 10 percent over 2005 results.The $1 billion in anticipated costs are mainly for tax and debt refinancing, the company said.Analysts expect a profit of 42 cents per share for the quarter, and $2.01 per share for the year, according to a Thomson Financial survey.Ravi Chanmugam, a lead partner at management consulting firm Accenture, said in a recent interview that splits such as Tyco was considering were “hangover breakups” of conglomerates put together during the stock market’s bubble years.”There’s still some tricklings that are taking place now, because finally those companies have a new CEO who’s been put in place, accounting problems have been fixed, the market is generally receptive now to spinning them off and the stock market is healthy again, so that’s why those things are happening now,” Chanmugam said.The company said revenue and margins in its fire and security business were hurt by weakness in its commercial security and worldwide fire services operations, but business improved in residential security. Revenue and operating profit growth in its international health care business were offset by shortfalls from product recalls and compliance issues in its imaging and respiratory businesses, and capacity problems in its pharmaceuticals business.Tyco Healthcare, which provides health care products and services, booked nearly $10 billion in revenue during 2005, and has more than 40,000 employees. After the breakup, the business will still be led by President Rich Meelia, who also will become CEO. Chief Operating Officer Kevin Gould and CFO Chuck Dockendorff will remain in their positions.The company said Tyco Electronics is a $12 billion business with about 88,000 employees. Juergen Gromer, who has led the electronic components supplier since 1999, will continue as president and will become vice chairman, while Jacki Heisse will continue as CFO.Tyco’s fire and security operations, along with its engineered products and services business, will be led by Tyco International CEO Breen and CFO Chris Coughlin, the company said. The $18 billion electronic security business employs more than 118,000 people.The company said Dave Robinson will continue as president of Tyco Fire & Security, while Naren Gursahaney will succeed Tom Lynch as president of Engineered Products & Services.—AP Business Writer Lisa Del Greco in New York contributed to this report.Vail, Colorado

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