U.S. conglomerate Tyco International Ltd. plans to split into three publicly traded companies, positioning itself for expected consolidation in its diverse businesses and potentially making it easier for its operations to be acquired.
The move was seen as the final unwinding of an industrial giant that for a decade has worked to repair its image after a fraud scandal.
Tyco, which was built through acquisitions, said the split would allow its three businesses – ADT North America residential security, flow-control products and services, and its fire and commercial security business – to have more options for growth, both from within and through acquisitions.
Tyco acknowledged the businesses could be sold and said it considered a breakup as much as four years ago before deciding to improve the businesses first.
If acquirers were to bid for a piece of the company, Tyco would weigh any offers, “but that’s not our plan,” chief executive officer Ed Breen told analysts on a conference call.
“I’m a big believer there’s going to be consolidation in these industries ... and we want our businesses to be able to play in that environment,” Mr. Breen said.
Asked whether one of the companies could be acquired immediately after the split, he replied, “That could happen.”
The move marks the final act of Mr. Breen’s nearly decade-long stewardship of a company he inherited in the midst of crisis, said Kent Croft, co-manager of the Croft Value Fund, a long-time Tyco shareholder.
“He’s done a very good job,” Mr. Croft said. “There’s nothing prohibiting someone from buying one of the companies.”
Tyco has been streamlining for a decade, “and this kind of completes it,” said Bryan Keane, co-manager of the Alpine Accelerating Dividend Fund, which holds Tyco shares.
Tyco was built up through acquisitions under former CEO Dennis Kozlowski, who is serving a prison sentence for fraud.
Individual pieces of Tyco could be attractive to a long list of acquirers, said analyst Jeff Sprague of Vertical Research Partners.
“We see all three pieces as possible takeover candidates,” Mr. Sprague said.
The ADT business could be attractive to AT&T, Verizon, Comcast, Stanley Black & Decker or a private equity buyer, he said.
Possible buyers for the commercial fire and security business include France’s Schneider Electric, Germany’s Siemens and U.S.-based United Technologies, Honeywell International and Johnson Controls, Mr. Sprague said.
United Tech or General Electric could be interested in the flow-control business, he said, or the unit could merge with ITT’s flow unit, Flowserve or Swiss-based Sulzer AG.
Although several companies with disparate businesses have moved to break up in recent months, analysts and investors said such moves are specific to each company and do not necessarily mark a wider shift away from the conglomerate model.
Consumer companies Kraft Foods Inc. and Ralcorp Holdings, credit rating agency owner and book publisher McGraw-Hill, and giant energy company ConocoPhillips have announced plans to split their businesses. Also, ITT Corp plans to spin its defence and water segments into separate companies.
The breakup of Tyco is the latest step in a nearly decade-long transformation of the conglomerate. Mr. Breen first broke up the company in 2007, spinning off its electronics division, now called TE Connectivity, and its health care company, now named Covidien.
He greatly expanded the security business with the $1.9-billion (U.S.) acquisition of Broadview Security in 2010.
“Breen has once and for all buried the sad chapter of ... Kozlowski,” said Anthony Michael Sabino of St. John’s University’s Peter J. Tobin College of Business. “Breen came in, restored order, and got the ship back on course.”
Tyco expects to complete the split-up within a year. It estimated refinancing and other costs at $700-million.
Goldman Sachs and Lazard acted as financial advisers to the company.
The ADT North America residential business, which provides security and fire alarm systems in North America to more than six million homes and small businesses, will have annual revenue of about $3-billion and 16,000 employees. Plans call for it to be incorporated in the United States.
The flow-control business, with annual revenue of $4-billion and 15,000 employees, sells valves and thermal controls for energy and other markets. It is expected to be incorporated outside the United States.
Tyco will combine the remaining commercial security business with its fire protection segment to form the largest new company, with annual revenue of $10-billion and 69,000 employees. Mr. Breen may be non-executive chairman of this business, while taking supporting roles at the others.
Tyco’s commercial fire protection business sells fire detection and suppression systems, while the security business serves commercial, industrial and government customers.