Tyco plans four-way company split

Special to CONTRACTOR PEMBROKE, BERMUDA Tyco International Ltd. in late January announced a plan to separate into four independent, publicly traded companies: Fire Protection and Flow Control; Security and Electronics; Healthcare; and Financial Services. Tycos rationale is that Wall Street has undervalued the stock of the conglomerate and that the split will lead to substantially greater total shareholder

Special to CONTRACTOR

PEMBROKE, BERMUDA – Tyco International Ltd. in late January announced a plan to separate into four independent, publicly traded companies: Fire Protection and Flow Control; Security and Electronics; Healthcare; and Financial Services.

Tyco’s rationale is that Wall Street has undervalued the stock of the conglomerate and that the split “will lead to substantially greater total shareholder value by creating independent companies that will be more appropriately valued by the market.”

Each of the four new public companies would operate with its current management team and an independent board of directors.

The fire-protection business would continue to be run by its long-time chief executive officer, Jerry Boggess, who is based in Boca Raton, Fla.

Under the plan, unanimously approved by the company’s board of directors, Tyco’s health care, financial services, and fire-protection and flow-control businesses will be taken public through initial public offerings and then distributed to Tyco shareholders. Tyco’s security and electronics businesses will be combined as a fourth independent, publicly traded company. Tyco Plastics, one of the largest U.S. manufacturers of plastic film and other plastic products, will be sold.

Tyco said it expects to complete the first of these IPOs for Tyco Capital in the second quarter of calendar 2002 and to complete all the planned transactions by the end of calendar 2002. In late January, General Electric was reportedly interested in buying the financial services business that was created when Tyco bought CIT Financial.

L. Dennis Kozlowski, Tyco International’s chairman and CEO, said that he would take up legitimate purchase offers with his board of directors, rather than spinning off a business with an IPO.

Each company will remain based in Bermuda, although Tyco has offices all over the United States, including New York, Boca Raton and Exeter, N.H.

Tyco International announced the plan in early January because it believed its stock was undervalued. Kozlowski noted that it was selling at a price/earnings ratio discount of 50% compared with the rest of the S&P 500. But by late January, the firm’s stock had plunged even further amid questions about its accounting practices in the wake of the Enron collapse.

Kozlowski had the added burden of persuading Wall Street that four companies are better than one when he had spent years arguing that conglomerates were better able to handle cyclical downturns in their various business segments.

The Fire Protection and Flow Control business reported pro forma 2001 revenues of $7.6 billion, 2001 operating profit of $1.3 billion and a 2001 margin of 17.1%

Tyco claims to be the world’s leading provider of fire detection, prevention and suppression products, installation and services, and a top global manufacturer of standard and specialized valve and control products.

The two businesses are being combined to take advantage of significant operating and marketing synergies, according to the company. The two groups serve a host of common customers and market segments, and a substantial portion of Tyco’s valve and flow-control products are used by the company’s fire-protection businesses.

Fire Protection and Flow Control will also include Allied Tube, the leading U.S. fire protection pipe manufacturer, and Tyco Infrastructure Services, formerly Earth Tech, a leader in the water, environmental, transportation and construction marketplace.

Tyco’s fire-protection units design, install and service automatic fire sprinkler systems, fire alarm and detection systems and special hazard suppression systems. These businesses operate through a worldwide network of sales offices under the trade names: Simplex/Grinnell; Wormald; Mather & Platt; Total Walther; O’Donnell Griffin; Dong Bang; Ansul; and Tyco.

In May 2001, Tyco acquired Scott Technologies, expanding its line of fire-protection products to include respiratory systems and other life-saving devices for the firefighting and aviation markets.

Tyco’s flow-control operations manufacture valves in a wide variety of configurations serving markets in the water distribution, power generation, chemical, oil and gas, pulp and paper, commercial irrigation, mining and industrial process and plumbing industries, among others. Its valves and related products are sold under several trade names such as Keystone, Grinnell, Hindle, KTM and Flow Control Technologies.

Boggess, who has run the fire-protection business since 1989, will continue as CEO. Jack Guarnieri, a senior finance executive within the flow-control business, will be its chief financial officer.