With Ex-CFO Managing, Tyco Is Breaking in Three

Tyco International Ltd. plans to break itself into three publicly traded companies, ending a decade when Chief Executive Officer Ed Breen transformed the scandal-plagued conglomerate into an S&P 500 index outperformer.

Former Tyco Chief Financial Officer Chris Coughlin will oversee the breakup, Tyco said in a statement today.

The separation will create standalone companies from ADT''s North American residential security, flow-control and the world''s biggest commercial security and fire-systems division, Schaffhausen, Switzerland-based The new companies may reach a break-up value as high as $70 a share, Vertical Research Partners co-founder Jeffrey Sprague wrote in a note to clients today.

"While the full strategic valuation of the pieces, i.e. take-over value, will have to wait until the separation, which could be six to 12 months away, we see all three pieces as possible take-over candidates," Sprague wrote. He raised his rating on Tyco to "buy" in August.

ADT may be a target for Comcast Corp., Verizon Communications Inc., Stanley Black & Decker Inc. or private equity firms, while the flow-control division may merge with a similar business spun out by ITT Corp., Flowserve Corp., Sulzer AG or be purchased by General Electric Co. or United Technologies Corp., Sprague wrote.

The new commercial security business might find itself wooed by Schneider Electric SA, United Technologies, Siemens AG, Johnson Controls Inc. or Honeywell International Inc., Sprague wrote. Tyco itself was the object of advances from Schneider in April.

Tyco Shares

Shares of Tyco rose $3.12, or 7.1 percent, to $46.82 at 8:31 a.m., before the U.S. open of trading. Under Breen, the stock more than doubled while the S&P 500 index rose 43 percent. 

"A split is not surprising whatsoever," said Joel Levington, managing director at Brookfield Investment Management Inc. who once was a Standard & Poor''s credit analyst following the company. "There was not a lot of strategic rationale for holding onto the asset mix they had. That is one of the key underpinnings behind our underperform opinion of Tyco credit. There really is no potential downside here."

Breen, who took over in July 2002, will stay on as non- executive chairman for security, director at flow control and consultant to ADT. Shareholders will get stock in each of the three companies under the tax-free spinoff structure, which will take about 12 months to complete.

Quarterly Dividends

Tyco plans to continue paying its quarterly dividend until the split is completed, after which the three businesses will pay a combined dividend of about the same amount. The transaction will probably have one-time costs of $700 million from refinancing debt as well as restructuring and separation.

Breen succeeded CEO L. Dennis Kozlowski, who exited amid a criminal investigation for personal tax evasion. Kozlowski ran the company for a decade, boosting revenue with acquisitions. When Breen joined Tyco, revenue was about $35.6 billion. Last fiscal year''s sales were less than half that amount, after about 25 divestitures and splitting the company into three in 2007.

Tyco under Breen created two other companies in that split: Tyco Electronics, now known as TE Connectivity Ltd., a maker of electronic components, and Covidien Plc, a maker of medical devices and supplies.

Spinoff Chiefs

As CEO of General Instrument Corp. in 1999, Breen sold that company to then-Motorola Inc., where he became president and chief operating officer.