MANHASSET, N.Y. Bermuda-based conglomerate Tyco International Ltd. has announced it would break up into three separate companies, effectively spinning off its troubled Tyco Electronics business.
Confirming rumors and several reports
, Tyco said in a written statement it would form three separate, publicly traded companies, each with their board of directors and corporate governance standards. Besides electronics, Tyco would spin off its Healthcare and Fire & Security and Engineered Products & Services businesses into separate companies.
Tyco will separate into three companies by tax-free stock dividends to its shareholders, after which they will own 100 percent of the equity in three publicly traded companies. Tyco expects to complete the transactions during the first quarter of calendar 2007.
The breakup puts an end to Tyco International’s reign as an business that agglomerated other businesses, a trend that peaked in the late 90s and early part of this decade as the conglomerate became a $40 billion business.
Tyco Electronics accounted for roughly a third of total revenue, as a diversified supplier of electronic components including connectors, switches, relays, circuit protection devices, touch screens, magnetics, resistors, wire and cable, as well as fiber-optic and wireless components and systems. Employing 88,000 at last count, the company went on a spending spree the latter part of the last decade, swallowing up companies such as AMP, Potter and Brumfield, Lucent Power Systems, and others.
But the times caught up with Tyco Electronics. In the early part of this decade, the combination of the telecommunications industry bust and global competition increased margin pressures
at Tyco Electronics, a problem that has persisted despite extensive cost-cutting measures including plant consolidation and layoffs.
Tyco Electronics’ woes were not helped by problems at the Tyco International management level. In 2002, Dennis Kozlowski
stepped down as Tyco International’s chairman and chief executive amidst allegations of widespread corporate misuse of funds. Kozlowski was subsequently found guilty and is now serving a prison term.
Under current chairman and chief executive Ed Breen
, a former Motorola executive, Tyco has taken strides in revamping management and restoring shareholder confidence. However, the effects on the overall bottom line have been uneven as market pressures mount.
As Tyco Electronics prepares to move into a new phase as a separate company, it retains many vestiges of the existing management. The company’s chief executive will be Tom Lynch, currently president of Tyco’s Engineered Products & Services segment, who has experience in the communications and electronics industries. Dr. Juergen Gromer
who has led Tyco Electronics since 1999, continues as president, and will also assume the post of vice chairman. Jacki Heisse will continue to serve as the company’s chief financial officer.
The transaction will incur one-time costs of $1.0 billion, largely for tax and debt refinancing. Under the proposed transaction structure, each of the companies will remain incorporated in Bermuda.
Tyco expects first quarter pro-forma 2006 earnings per share from continuing operations to be 38 cents per share, down from previous guidance of 40 to 42 cents per share.