Tyco Abandons Break-Up Plans

by Mike Godfrey, Tax-News.com, New York

26 April 2002

Bermuda-based industrial giant Tyco announced yesterday that it would abandon plans to break itself up as a result of the negative reaction from investors and markets to its plans.

The timing of Tyco's break-up announcement was unfortunate, coming as it did immediately after the Enron debacle, plunging the company into a welter of accusations and suspicion over accounting policies. Legislation in the US Congress which may punish companies based in offshore jurisdictions with higher tax charges has also not helped sentiment.

Tyco's shares fell $5.15 yesterday, or 20 per cent, to close at $20.75, down from $42 when the original announcement was made in January.

Dennis Kozlowski, chairman and chief executive, apologised to Tyco's shareholders: "It was a mistake and I take responsibility for that mistake," he said. Mr Kozlowski had predicted that the break-up would increase shareholder value by 50%.

The company released details of its results for the three months to the end of March, reporting a loss of US$1.9bn after taking a charge of US$3.3bn for asset write-downs and restructuring.

In a letter to shareholders, Mr Kozlowski said: "It is now clear that we took the market by surprise with our announcement, and failed adequately to take into account the extraordinarily fragile market psychology and hostile environment that has distracted and damaged our business in recent months." He has no plans to quit, though, and says he is still the best man to lead Tyco.

Tyco now plans to sell its entire shareholding in its CIT financial services division through an IPO which is expected to raise around $6.5bn and will use the cash proceeds to pay repair its balance sheet. Goldman Sachs and Lehman Brothers have been retained to manage the offering.

Mr Kozlowski's letter warns shareholders that the company will no longer seek to grow rapidly through acquisitions, but instead will focus on improving its return on capital. Growth-oriented investors who have supported Tyco while it continued to make acquisitions are now likely to sell.

Recommended