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Tyco spent $8B in deals
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February 4, 2002: 5:43 p.m. ET
Report says company did not disclose more than 700 small acquisitions.
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NEW YORK (CNN/Money) - Shares of Tyco International Ltd. plunged more than 16 percent Monday in reaction to a published report which said the company spent $8 billion on more than 700 acquisitions during the last three years that were not disclosed to the public.
The Wall Street Journal reported that company executives gave details of the deals to the paper in response to questions. The paper said some investors have questioned why Tyco debt nearly doubled last year to $21.6 billion while it was reporting $4.8 billion of free cash flow.
The company released a copy of letter it sent to the newspaper, calling the article "blatantly false and malicious." It insisted it had properly disclosed the net cost of all transactions in all of its various financial reports and that issuing specific details on each small deal was not practical for a company with annual revenue of more than $36 billion.
Tyco shares have lost almost a third of their value since it announced its plan to split into four companies two weeks ago.
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CNNfn's Amanda Lang takes a closer look at Tyco.
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Tyco Chief Financial Officer Mark Swartz is quoted in the paper as admitting that investors would not be able to discern the amount spent on the small deals because the company doesn't disclose the amount of cash on the balance sheets of companies it acquires. That cash is subtracted from the net value of the acquisition that the company does disclose, but calculating the unannounced deals requires that it be added back, the Journal reported. The company may provide additional details on acquisitions in future financial filings, the paper said.
Swartz's letter to the Journal said that the paper could not provide an example of any company similar to Tyco that discloses more information about small purchases.
"Beyond the inflammatory headline, and given that the story itself concedes that everything that must be disclosed is disclosed, we fail to see the news value of the story you gave such prominence to in today's paper," said the letter.
"Tyco is really correct here," David Tice, fund manager at David Tice & Associates, told CNNfn. "They did make the required disclosure in their cash flow statement as far as how much money they spend net of the cash they received of those companies, so I can see Tyco's point."
"What was not really disclosed, but it's not really required, is the magnitude of the number of these acquisitions," he said. "Seven hundred acquisitions is a great number."
Tice's Prudent Bear Fund is a well-known short seller of Tyco stock.
The collapse of energy trader Enron Corp. amid questions about its accounting practices has placed new emphasis on financial disclosure practices. Tyco announced plans last month to split into four separate companies, a move it said would unlock shareholder value. But the move follows some complaints that its accounting was difficult to understand, particularly in relation to acquisitions.
Separately, Tyco announced Monday it will repurchase all its $4.5 billion in commercial paper at scheduled maturities, and that it will fund these purchases with borrowing under its existing lines of credit. It said higher interest costs will boost its borrowing costs by about 2 cents a share but that it still is the right move in the current market.
Debt rating agency Fitch said late Monday it downgraded Tyco's senior unsecured debt to "A-" from "A" to reflect "the impact of recent events on the company's ability to access the capital markets, evidenced by the company's decision to draw on its bank facilities."
Standard & Poor's also lowered its Tyco rating, moving the company to "BBB" from "A."
"By taking these actions we are enhancing Tyco's flexibility, liquidity, and eliminating uncertainty about our ability to finance our recently announced plan to unlock shareholder value," CEO Dennis Kozlowski said. "Additionally, the company has projected remaining fiscal year 2002 free cash flow to be in excess of $4 billion, of which a majority will be used to reduce existing indebtedness."
Tyco Capital Corp., the financial services arm, said it has arranged its own credit lines of $3 billion. The unit said it will return to the CIT brand name that had been used before its purchase of CIT last year. 
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