Tyco comes clean
Conglomerate cancels plans for IPO of finance unit; Bard merger cancelled.
February 6, 2002: 2:55 p.m. ET
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NEW YORK (CNN/Money) - Tyco International Ltd. attempted to quell investor unease with its accounting practices Wednesday while warning it may miss its full-year earnings forecasts.
Tyco Chairman and CEO Dennis Kozlowski assured analysts on a conference call Wednesday that the company had no liquidity concerns. The executive also refuted recent press reports that questioned the company's financial reporting.
The company's stock has lost about 54 percent of its value this year, wiping nearly $70 billion off Tyco's market value, as investors worried that its complex accounting could lead to Enron-style problems.
"Our accounting is sound and appropriate and we will put that in a public filing," Kozlowski said on the call. "We will be able to demonstrate to you that our accounting is as sound as it was two years ago."
The chairman specifically referred to a New York Times article Wednesday that dealt with the crisis of confidence confronting Tyco.
"Buried in that article it says no evidence of accounting irregularities have been found," Kozlowski said. "That is true. The same thing happened two years ago and we were able to demonstrate two years ago that our accounting was sound."
Wall Street seemed reassured by Kozlowski's comments, and Tyco (TYC: down $0.59 to $27.41, Research, Estimates) shares surged more than 16 percent Wednesday in afternoon trading.
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Michael Regan of Credit Suisse First Boston shares his view on Tyco.
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Executives on the call reassured analysts that Wall Street worries over its finances were overblown but did give a "worst-case" scenario for the Bermuda-based conglomerate.
Tyco Wednesday warned that it could miss full-year earnings due to higher borrowing costs, weakness in its electronics business and the accounting worries on Wall Street that have clobbered its stock price.
"I realize these numbers could point to something below our previous $3.70 earnings guidance," Kozlowski said.
He gave no specific per-share range or forecast for the conglomerate's fiscal year ending in September, but noted that rising costs in three areas could hurt results.
Higher costs from more expensive borrowings could reduce earnings by 10 cents to 15 cents a share, weakness in electronics could hurt by as much as 25 cents a share, and "market noise," or the rumors hurting Tyco's stock, could lop off as a 5 cents a share, he said.
Tyco's CEO also said there are no concerns about access to capital at Tyco or its Tyco Capital unit, which is reassuming the CIT name, and that the financing subsidiary has cut costs by $150 million.
The company scheduled the call with analysts and investors to address growing concerns on Wall Street about its finances.
No IPO for CIT
Tyco announced a plan last month to split into four pieces, reversing a decade-long strategy of growth by acquisition. The company had planned to take its health care, fire protection and financial services units public through a series of initial public offerings.
Tyco Wednesday canceled plans for an IPO of its finance unit, the CIT Group, and will instead pursue a spin off of the division, executives on the call said.
At the same time, Tyco will be shopping the group to prospective buyers, the executives said.
"One option would be to spin (CIT) out to shareholders without an IPO. That's an option we are pursuing right now," one executive on the call said. "But other things could happen along the way that could greater enhance the value of CIT," he added.
Potential bidders for the CIT unit include GE Capital, Citigroup, the FleetBoston Financial Corp., Wells Fargo and several other companies, the New York Times and Wall Street Journal said.
When analysts later questioned whether the conglomerate would spin off or pursue a sale of the unit, Tyco executives said they plan to distribute shares of CIT to stockholders in about eight to 12 weeks.
"We have had some interest from potential buyers. We will move along the sale process but also move along the spin route in the same expedited fashion," an executive said.
Tyco also plans to sell its plastics unit and hopes to announce the sale at the same time it releases second quarter earnings in mid-April, the company said.
On Monday and Tuesday, Tyco had to tap two lines of bank credit totaling $14.4 billion after the parent company and its finance unit were effectively frozen out of the commercial paper market -- short-term borrowings from other companies -- after Standard & Poor's cut its ratings on the Tyco and Tyco Capital debt Monday.
Commercial IOUs are often the quickest, cheapest way for big companies with rock-solid credit-ratings to raise capital. Borrowing from banks can be more costly.
Bard and Tyco end merger
C.R. Bard Inc. and Tyco International Ltd. mutually agreed Wednesday to end their $3.2 billion merger agreement.
Murray Hill, N.J.-based Bard said it now believes that the best course for the company is to remain independent. Bard gave no further reason for the breakup and each party will bear its own costs in connection with the termination, Bard said.
A spokeswoman for Tyco confirmed that both parties agreed to end the merger. "There is no break-up fee," the spokeswoman said.
The news comes after Tyco International (TYC: down $0.59 to $27.41, Research, Estimates) hosted a conference call Wednesday to reassure investors about its finances.
"We have always acted in the best interest of our shareholders," Bard Chairman and CEO William Logfield said.
The $3.2 billion merger agreement, which includes debt, would have given Tyco a stronger foothold in the worldwide medical devices market. Murray Hill, N.J.-based Bard makes products for hernia repair, prostate cancer treatment and heart disease. 
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