Tags: Tyco | International | merger | TYC

Tyco International Spin-off, Merger Seeks Efficiencies

By    |   Friday, 08 Jun 2012 10:20 AM

Tyco International (TYC), in the throes of a spin-off and merger, is likely to be able to realize greater efficiencies under a new structure which splits it into three separate, new firms. Analysts are positive on the outlook following the changes.

Tyco International is provides security products and services, fire protection and detection products and services, valves and controls, and other industrial products.

Tyco International is organized under the laws of Switzerland. The company was created as a result of the July 1997 acquisition of Tyco International Ltd., a Massachusetts corporation, by ADT Limited, a public company organized under the laws of Bermuda, at which time ADT Limited changed its name to Tyco International Ltd.

On Sept. 19, 2011, Tyco announced a plan to separate the company into three separate, publicly traded companies consisting of the company's North American residential security business, its flow control business, and its commercial fire and security business by spinning off the North American residential security business and flow control business in a tax-free pro rata distribution to shareholders.

In the second fiscal quarter of 2012, Tyco reorganized its reportable segments to more closely align with its reporting and management structure, which had been realigned in anticipation of the spin-offs of the company's ADT North American residential security business and its flow control business.

As a result of this realignment, the company now has three new reportable segments: Commercial Fire and Security, ADT North American Residential and Flow Control.

On March 28, 2012, the company announced that it entered into a definitive agreement to combine its flow control business with Pentair (PNR) in a tax-free, all-stock merger, immediately following the spin-off of the flow control business.

Upon completion of the merger, which has been unanimously approved by both companies, Tyco shareholders are expected to own approximately 52.5 percent of the combined company and Pentair shareholders are expected to own approximately 47.5 percent. Completion of the separation transactions, including the merger, is subject to the approval of the distributions by Tyco shareholders, the approval of the merger by Pentair shareholders, regulatory approvals and customary closing conditions.

Tyco International has a market cap of $23.99 billion in a sector, industrial conglomerates, where the average company size is $6.4 billion. Its trailing 12-month P/E ratio is 17.22 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.44, compared to 1.06 for the sector.

Its projected earnings per share growth for the coming year is 13.01 percent, compared to a sector average of 12.41 percent.

Powerful scale


Wall Street is broadly bullish on the prospects of Tyco, with buy or outperform calls in from William Blair & Company, Credit Suisse, Friedman, Billings & Ramsey, Merrill Lynch, and B.P. Bernstein.

Standard & Poor’s Equity Research rates the stock at neutral. “We think that TYC's plans to divide its businesses into separately traded public companies makes sense, as we believe it derives limited synergies from them.”

“We also view favorably the planned merger of the Flow Control unit with Pentair right after the split up, as the combined company should have more powerful product and geographic scales, and synergies. Based on these factors and our sum-of-the-parts valuation, we view TYC shares as fairly valued at current levels.”

Tyco International next reports on July 26.

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2012-20-08
Friday, 08 Jun 2012 10:20 AM
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