Tyco International Ltd. said Friday it plans to split into three public companies, separating its electronics and health care businesses from its remaining operations which include security and fire-protection services at a cost of about $1 billion.
The company, which may be best known for its ADT home alarm systems, also warned its first quarter and full-year 2006 earnings from continuing operations would be lower than expected.
Its shares tumbled $2.06, or 6.8 percent, to $29.25 in premarket trading.
Tyco said the breakup, which had been widely anticipated, followed a strategic review and will strengthen the businesses.
Tyco has been recovering from accounting scandals. Its former CEO, L. Dennis Kozlowski, and former Chief Financial officer Mark H. Swartz, were sentenced to prison last year for grand larceny, conspiracy, securities fraud and falsifying business records, and are appealing their convictions.
In November, the company said it might split up its businesses to boost the value of its stock. It also considered a breakup four years ago.
Tyco said Friday its board has decided to separate Tyco Healthcare and Tyco Electronics from the Tyco Fire & Security and Engineered Products & Services businesses through tax-free stock dividends to shareholders, who will then own all the stock. The changes are expected to be completed in the first quarter next year. The anticipated costs are mainly for tax and debt refinancing, the company said.
"Our balance sheet and cash flows are strong and many legacy financial and legal issues have been resolved," said Ed Breen, chairman and chief executive, in a statement. "After a thorough review of strategic options with our board of directors, we have determined that separating into three independent companies is the best approach to enable these businesses to achieve their full potential."
Tyco said it considered a range of options, including selling certain businesses, and separating only one of the operations. The three companies will have their own independent boards and corporate governance standards, and are expected to remain incorporated in Bermuda.
The company said it now expects first-quarter earnings, excluding one-time items, to be about 38 cents per share from continuing operations, down from its prior outlook of 40 cents to 42 cents per share.
Tyco lowered its full-year 2006 earnings forecast to a range of $1.85 to $1.92 per share from continuing operations. It previously expected earnings to increase by about 10 percent over 2005 results.
Analysts expect a profit of 42 cents per share for the quarter, and $2.01 per share for the year, according to a Thomson Financial survey.
The company said revenue and margins in its fire and security business were hurt by weakness in its commercial security and worldwide fire services operations, but business improved in residential security. Revenue and operating profit growth in its international healthcare business were offset by shortfalls from product recalls and compliance issues in its imaging and respiratory businesses, and capacity problems in its pharmaceuticals business.
Tyco Healthcare, which provides health care products and services, booked nearly $10 billion in revenue during 2005, and has more than 40,000 employees. After the breakup, the business will still be led by President Rich Meelia, who also will become CEO. Chief Operating Officer Kevin Gould and CFO Chuck Dockendorff will remain in their positions.
The company said Tyco Electronics is a $12 billion business with about 88,000 employees. Juergen Gromer, who has led the electronic components supplier since 1999, will continue as president and will become vice chairman, while Jacki Heisse will continue as CFO.
Tyco's fire and security operations, along with its engineered products and services business, will be led by Tyco International CEO Breen and CFO Chris Coughlin, the company said. The $18 billion electronic security business employs more than 118,000 people.