Tyco Boss Kozlowski Stands Down

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

05 June 2002

L. Dennis Kozlowski, chairman and CEO of Bermuda-based Tyco International, has resigned, for "personal reasons." Just last week, Mr. Kozlowski said he had no intention to resign, and the company's board expressed its support for him.

Mr. Kozlowski's resignation is scarcely surprising after a disastrous six months for the company, in which he first announced plans to break Tyco into four separate companies in January, but then after accounting and credit concerns, and repeated profit warnings, abruptly changed course in April, saying that the company would focus on organic growth.

The timing may however owe more to rumours that surfaced in the New York Times this week that Kozlowski is being investigated on suspicion of dodging New York state sales taxes. No charges have been filed, but prosecutors in the Manhattan district attorney's office are said to believe that Kozlowski used hundreds of millions of dollars from family trusts to buy goods and services without paying state sales taxes.

Tyco director John F. Fort, who held the top job from 1982 to 1992, before its dazzling growth began through hundreds of acquisitions, takes over while a search for Kozlowski's permanent replacement begins. The company also said it would continue its plan to spin out CIT, its financial services subsidiary.

"We plan to complete the IPO of CIT by the end of June," Fort said. "Also, I fully support the evolution of the company's long-term operating strategy to focus more on organic growth." Mr. Fort on Monday praised Mr. Kozlowski for his efforts in building Tyco into a $36 billion conglomerate. "I fully support the evolution of the company's long-term operating strategy," he said in a prepared statement.

Investors have seen Tyco's shares plummet from about $60 to $17 at the close of trading on Monday.

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. So-called 'Patriot Tax' legislation in the US Congress, which has been heavily supported by the New York Times and which may punish companies based in offshore jurisdictions with higher tax charges has also not helped sentiment.

In April when the company reversed course, Dennis Kozlowski 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%.

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."

Recommended