Stockholders as of June 18 will get one share of the health-care company, named Covidien, and one share of the electronics unit, Tyco Electronics, on June 29 for every four shares of the parent owned, Bermuda-based Tyco said in a statement yesterday.
Chief Executive Officer Edward Breen and his board moved in January 2006 to break up Tyco to improve returns for investors in the conglomerate built by former CEO L. Dennis Kozlowski, now serving time in New York State prison for stealing from the company. Tyco settled in May shareholder lawsuits stemming from that era for $2.98 billion. Breen had set the end of June as the deadline for the split after delaying from the first quarter.
``Today is clearly independence day, not only for these three businesses that were trapped in an overburdened corporate structure, but also for shareholders who have been waiting patiently for this day to come,'' said Dennis Jean-Jacques, a portfolio manager at Stamford, Connecticut-based Basso Capital, which owns about 500,000 Tyco shares.
Shares of Tyco, which is run from West Windsor, New Jersey, jumped $1.17, or 3.6 percent, to $33.80 at 4 p.m. in New York Stock Exchange composite trading. It was the biggest gain since May 4, 2006. They have climbed 11 percent so far this year.
Eventual Total Value
The SEC approved the company's intent to split into three, Tyco spokesman Paul Fitzhenry said.
Jean-Jacques estimates Tyco is trading at about half its eventual total value, given that the three new companies have ``options'' to push their share prices higher after the split. Company executives said on May 10, for instance, that ``simplification'' of the new electronics company would increase returns.
Approval ``removes almost all of the remaining uncertainty surrounding Tyco's ability to successfully complete its spinoff process on its planned time schedule,'' wrote Scott Davis, an analyst at New York-based Morgan Stanley, in a note yesterday. He has an ``overweight'' rating on the stock.
Davis estimates Tyco's ``full value,'' referred to by analysts as sum of the parts, at about $39 a share. The company in January said it may cost as much as $1.6 billion to complete the split.
Bond Trustee
Tyco also filed with the SEC to withdraw the debt offerings that the three new entities registered in connection with the separation because Tyco has the financing in place to complete the spinoffs, Fitzhenry said.
Tyco is being sued by its bond trustee, Bank of New York Co., which is seeking a court order to resolve a dispute over how much bondholders should be compensated after the spinoffs.
The company sought to buy back about $5.6 billion of debt, receiving less than a third of the amount it tendered for. After the offer failed, Tyco said it would void bondholders' right to veto the breakup plan by waiving the ``majority consent'' covenant in its bond indentures.
The June 4 lawsuit continues a conflict that began last month with American International Group Inc.'s investment- management unit claiming that bondholders were entitled to about $95 million more than Tyco's offer. While the AIG suit has been withdrawn, a bondholder committee this month said it plans to file a new complaint.
Reverse Share Split
Shares of the new companies may start trading as soon as July 2, Fitzhenry said. Covidien will trade under the symbol COV and Tyco Electronics as TEL on the New York Stock Exchange.
The Tyco board also signed off on a one-for-four reverse share split for the parent company, which will become effective right after the spinoffs, the company said. Stockholders approved that move on March 8.
Immediately following the breakup, Tyco holders will own all the shares of Covidien and Tyco Electronics, the company said. Tyco has already named executives and boards for both new companies. Breen intends to stay on and run what's left of Tyco.
Covidien will be the world's second-biggest maker of disposable-medical products behind Johnson & Johnson, while Tyco Electronics will be the world's largest manufacturer of electronic connectors. Tyco International is the world's biggest provider of security and fire prevention systems as well as the largest maker of industrial valves.
Manipulating Earnings
Kozlowski and former Chief Financial Officer Mark Swartz are serving sentences as long as 25 years for stealing more than $150 million in unauthorized bonuses and defrauding Tyco shareholders of millions more.
Investors alleged in their suits that the two also orchestrated a scheme to manipulate the company's earnings. Kozlowski was forced to step down in 2002. Tyco agreed in April 2006 to pay $50 million to settle SEC claims over flawed accounting. The SEC had alleged that Tyco inflated operating income by $567 million through its ADT security unit.
An investor day will be held June 19 at 8 a.m. at the Equitable Center in New York City to discuss the three companies.
Breen, Tyco Electronics CEO Thomas Lynch and Tyco Healthcare Chief Executive Rich Meelia will attend to answer questions, Tyco said.
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