Tyco Plans to Break Into 3 Companies; Shares Jump
Swiss manufacturer Tyco International said Monday it plans to separate into three independent, publicly-traded companies to foster growth for each of the entities.
The company will create an ADT North America residential security business and separate companies for flow control products and commercial fire and security. Tyco said the new companies will have greater flexibility to pursue their own growth strategies than they would under the current corporate structure.
Shares rose more than 7 percent in premarket trading.
The ADT business, which provides security and fire alarm systems for homes and small businesses, will be incorporated in the United States. It has annual revenue of about $3 billion and about 16,000 employees.
The flow control business sells valves and controls for the energy, mining and water markets. It also designs and installs heat management systems for the energy and general process industries. Tyco said that business will be incorporated outside the United States, and the commercial fire and security business will remain incorporated in Switzerland.
Tyco's board has unanimously approved the plan, and the company expects to complete the deal in about a year. Tyco directors will serve on the boards of all three companies. Chairman and CEO Ed Breen will become non-executive chairman of the commercial fire and security company, a director of the flow control company and a consultant for ADT North America.
The company said it will complete the separation by issuing tax-free stock dividends of the ADT and flow control businesses to Tyco shareholders.
It expects transaction costs of about $700 million mainly for debt refinancing and restructuring, to be offset somewhat by lower interest expense and other operational benefits.
Tyco becomes the latest conglomerate to announce such plans.
Consumer companies Kraft Foods, Ralcorp Holdings , finance-to-education conglomerate McGraw-Hill and energy giant ConocoPhillips have announced plans to split their business as conglomerates are falling out of favor with investors.
This is not the first time Tyco has split its business. In 2007, it spun off Tyco Electronics and healthcare company Covidien .
The commercial security business and the fire protection segment combined will bring in revenue of about $10 billion per year. The president of Tyco's fire protection unit, George Oliver, will become the new company's CEO.
The president of Tyco's security solutions segment, Naren Gursahaney, will become the new chief executive of its ADT North America residential business that provides security and fire alarm systems in North America.
The business is expected to have annual revenue of about $3 billion and is expected to be incorporated in the United States.
Patrick Decker, president of Tyco's flow control segment, would take over as the CEO of the third new company that sells valves and controls for the energy markets, general process industries, mining and water markets.
The business is expected to be incorporated outside the U.S. and would have an annual revenue of about $4 billion.
The company said the three entities together are initially expected to pay a dividend that is about equal in sum to the current Tyco dividend, and it expects the transaction to be completed in about 12 months.