Uncertainty Looms Over Tyco's Break-Up Plan

BOSTON – The surprising break-up plan announced last month by Tyco International Ltd. may take longer to execute while the conglomerate vows not to spin off its businesses at rock-bottom prices.

Tyco executives said when unveiling a plan on Jan. 22 to split Tyco into four separate companies and sell its plastics business that there was little execution risk and the spinoffs would increase shareholder value by 50 percent over time.

There's plenty of risk, however, as Tyco did not anticipate the credit downgrades that would raise its borrowing costs and the nagging doubts about its accounting methods.

The disruptions will hurt second-quarter earnings, too, Tyco said on Wednesday. Tyco shares fell $1.30, or 4.15 percent, to $27.70 in Thursday morning trade on the New York Stock Exchange.

Merrill Lynch analyst Phua Young said Tyco's depressed stock price, off about 38 percent since the plan was unveiled, means the company may have to hold onto some of its businesses longer than expected. Tyco initially said it would complete all the transactions by the end of 2002.

"It's a question of when as opposed to if," Young said.

During the first in a series of weekly conference calls to calm jittery investors and analysts, Tyco Chairman Dennis Kozlowski said on Wednesday he would run the company as a "cash machine" if the market for selling was not good.

"All positions here that create shareholder value are on the table," Kozlowski said. "We're sitting here at a stock price considerably lower than we thought we would be when we announced this deal," he said. "That's the reality of it."

He said Tyco is committed to the sale or spin off of its finance arm, now called CIT. Tyco also said it would retain a minority stake in the business and sell that position at the right price. He also reaffirmed plans to sell the plastics business.

When asked if he had any doubts about the rest of Tyco's restructuring plan, spinning off its fire protection and healthcare businesses, Kozlowski did not answer directly.

"We really need the confidence and credibility here to be able to spin the companies to shareholders and achieve for the them the absolute very best value possible," he said.

Young said separating CIT from Tyco should be good for both companies and improve Tyco's flexibility in carrying out the other restructuring moves.

By separating CIT from Tyco, Kozlowski gets rid of a big debt structure, even though its non-recourse to Tyco, Young said.

"It potentially eases financial concerns," Young said. "Both companies are weighing each other down."