Tyco International yesterday announced a long-awaited split. However, the news was overshadowed by the latest in a series of profit warnings.
The US conglomerate, built through a flurry of acquisitions by jailed former chief executive Dennis Kozlowski, confirmed plans to break his empire apart into three new companies. But its shares fell nearly 10 per cent in early trading as investors reacted negatively to the latest warning.
The fall wiped out two-thirds of the gain that Tyco shares have made since it first hinted at a break-up strategy in November.
Ed Breen, chairman and chief executive, who led the company's recovery after an accounting scandal, said the new strategy would show that the sum of the parts was greater than the whole.
"Last spring we recognised that Tyco was ready for the second phase of its turnaround," said Mr Breen.
The board of directors agreed late on Thursday to break up the company into Tyco Healthcare, Tyco Electronics and a combined Tyco Fire Security and Engineered Products Services.
It follows the underperformance of its share price and weak growth in some of its businesses.
In 2002, the conglomerate proposed a split but the plan was withdrawn after it emerged that Mr Kozlowski and other senior executives had been involved in accounting fraud.
Since then Mr Kozlowski has been convicted for his role in the scandal and Mr Breen has set the company on the road to recovery. But last year Tyco shares underperformed the broader market by more than a fifth.
"After a thorough review of strategic options with our board of directors, we have determined that separating into three independent companies is the best approach to enable these businesses to achieve their full potential," Mr Breen said. Tyco said the split would be managed through tax-free stock dividends to its shareholders, who would then own 100 per cent of the equity in the three publicly traded companies.
Each company will have its own independent board of directors, and the break-up is expected to be completed during the first quarter of 2007, Tyco said. One-time transaction costs are expected to total about $1 billion.
Separately, Tyco lowered its first-quarter earnings per share outlook to about $0.38 compared with $0.40 to $0.42.
