Tyco International To Split Three Ways

Sep.22.11 | About: Tyco International (TYC)

Tyco International Ltd. (NYSE:TYC) announced its plans to break out into three separate companies. The plan has received the unanimous approval of Tyco’s Board of Directors. The trio to be formed out of Tyco include the ADT North America residential security business, low control products and services business and commercial fire and security business. Each company will have an independent existence and will be publicly traded.

Tyco believes the restructuring will enable each stand-alone unit to re-focus more fully on its core business and provide improved services to its customers. The three companies will enjoy leading positions in the markets served by them, thus creating significant value for shareholders.

The transaction is expected to be completed in approximately 12 months, subject to certain conditions including shareholder consent. The company estimates a one-time transaction cost of approximately $700 million, consisting of debt refinancing, separation and restructuring costs. As per the plan put forward, the ADT North America residential business is to be incorporated in the United States, while the flow control business will be incorporated outside the U.S. The commercial fire and security business will continue to be incorporated in Switzerland.

If carried through, this will be the second split for Tyco. On June 29, 2007, Tyco completed the spin-offs of Covidien and Tyco Electronics, formerly its Healthcare and Electronics businesses, respectively, into separate, public companies, in the form of a distribution to Tyco shareholders. Effective March 17, 2009, the company discontinued its existence as a Bermuda corporation and remains till date a Swiss-domiciled entity. Major competitors of Tyco are General Electric Co. (NYSE:GE), Honeywell International Inc. (NYSE:HON) and United Technologies Corp. (NYSE:UTX).

We maintain a Neutral rating on Tyco with a Zacks #3 Rank (short-term Hold recommendation).