Tyco International Ltd. raised $4.6-billion (U.S.) in the sale of CIT Group Inc., less than expected and about half the amount the conglomerate paid for the finance business a year ago.
Tyco sold 200 million CIT shares at $23 each, below the $25 to $29 range Tyco set two weeks ago and less than the $25 that investors anticipated as recently as yesterday.
Bermuda-based Tyco, needing the cash to help pay back more than $27-billion in debt and help revive a stock price that's dropped 76 per cent this year, pressed ahead with the sale while other companies postponed their offerings because of faltering stock markets.
"When you've got a company that's doing a distressed sale, it's sure to taint the deal," said Marcy Yeamans, an analyst at Banc One Investment Advisors, which manages about $142-billion and owns Tyco shares. "I don't think it's any surprise investors put pressure on the price."
CIT's IPO marks a return to public ownership for the 94-year-old company, which leases airplanes and trains, finances telecommunications companies and provides home equity loans.
CIT chief executive officer Albert Gamper spent the past two weeks talking to potential investors, trying to distance the company from Tyco's difficulties. He has blamed Tyco for many of his company's problems, including credit rating downgrades that have increased its cost of borrowing. He expects CIT's credit ratings to go up once the finance company is independent.
"We always liked management, we always liked how they ran the business, and liked the business in general," said Tim Ghriskey, founder of Ghriskey Capital Partners. "What worries us is the taint of Tyco and that's an overhang for many investors."
At $23 a share, Tyco will reap less than the $6.5-billion expected when it announced the sale of CIT this year and much less than the $9.5 billion it paid for CIT last June.
Unlike other companies, Tyco couldn't afford to postpone its offering, some investors said. For example, Merck & Co. Inc. yesterday delayed the $1-billion IPO of Medco Health Solutions Inc. for a second time, rescheduling the sale for next week.
Tyco has also been weighed down by concerns over management after chief executive officer Dennis Kozlowski resigned last month and has been charged with tax evasion and tampering with evidence. As well, the company's accounting for its $64-billion of acquisitions is being investigated by the U.S. Securities and Exchange Commission, according to a person familiar with the matter. Tyco has said it knows of no such investigation.