Tuesday, December 20, 2005

The $3 Billion Haircut


Tyco Nears Sale of Plastics Unit To Apollo Advisors for $1 Billion

—Wall Street Journal

It’s official!

Almost four years after first being promised to Wall Street’s Finest by the now-convicted ex-CEO and CFO of Tyco, the sale of Tyco’s plastics business looks set to happen.

The $1 billion reported purchase price, however, is $3 billion lower than the high end of the range promised by Dennis and Mark on January 22, 2002 at the New York analyst meeting announcing the proposed split-up of the conglomerate they had spent years smooshing together through serial acquisitions, showering millions of dollars worth of fees on the very same firms whose analysts were loudly touting a hodge-podge of unrelated stuff as “The Next GE.”

Current Tyco CEO Ed Breen, the widely hailed ex-Motorola turnaround “star” whose turnaround efforts at Motorola are being quickly undone by his successor Ed Zander, has not gotten very far creating value here.

And if the collapse in the value of the plastics division over the last four years is any indication, he may not get much further.


Jeff Matthews
I Am Not Making This Up

© 2005 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.

11 comments:

Chlngr said...

Yeah, I know that all TYC owners are looking back at what Koz and Schwartz said in 2002... I agree, Jeff -- it's incredibly relevant to the value of the business.

Don said...

I don't see this as "a collapse in value" in Tyco's plastics business over the last few years. The top end of a price range quoted by Kozlowski when he was in the midst of trying to keep Tyco's stock from imploding doesn't mean the business was ever worth anything close to that. Koz ended up taking plastics business off the market because it didn't attract a serious bid in the neighborhood of the low end of the quoted range, much less the high end.

bben123 said...

Isn't it possible that the "collapse in value" you referred to in Tyco's plastics business has at least as much to do with the increase in oil prices since 2002 than with poor management? My understanding is that petroleum is a major input in production of plastics.

tahoe kid said...

The 'collapse in value' could be better described as a 'collapse in perceived value' for the Wall Street bulls firmly believed the tout coming from Dennis Kozlowski's grand proclamations. And why anyone who was in the same room as DK would believe anything he said is beyond me. After seeing him at an investor conference during his glory days, he struck me as the essence of sleaze.

jucojames said...

With all due respect Jeff, if I remember correctly you were negative on TYC the entire time throughout the entire post Koz saga and railed against the current management team then too. Of course, the stock has moved from the low teens to a high in the mid $30's since the new team arrived. If that is not "value", then I don't know what is! I do not and have not owned the stock, but wish I would have been more contrarian with the stock at $9 when many were POSITIVE that with so many acquisitions and a crooked management team that there had to be accounting fraud and another Enron type collapse.

barilko51 said...

Whatever happened to Phua Young?

westcoast said...
This comment has been removed by a blog administrator.
westcoast said...

there is a great interview in which Leon Cooperman is (and has been) a big fan of TYC and the value this conglomerate break up will unlock:
http://www.weedenco.com/welling/
Downloads/2005/0722welling121505.pdf

DaleW said...

A $3B haircut on 2B shares is $1.50 per share. The stock is down from $60+ and that's before $7 per share in net reduction since then. You claim Breen is doing poorly in that light?

Jeff Matthews said...

Breen had nothing to do with the $3 billion haircut in the plastics valuation--it had far more to do with Dennis & Mark selling Wall Street's Finest a bill of goods in 2002. Plastics was never worth the $3-4 billion they claimed it to be.

As far as I can tell, Breen has done well to pull Tyco out of its nose dive--but the fact is his tenure at Motorola was a non-event (as has been demonstrated by Ed Zander's moves at the helm of MOT), yet it was on that Motorola track record that Breen was hailed as the savior of Dennis & Mark's failed empire.

Nothing else in my piece suggested any opinion regarding Tyco's valuation, either way.

DaleW said...

My point is this Plastics sale was a non-event. The collapse in value has more to do with fundamentals in plastics than Ed Breen's leadership and even then, the difference is $1.50 per share total. Meanwhile, to demonstrate how much of a non-event this is, I pointed out the net debt reduction that has taken place under Breen, which is much more significant. Finally, if you don't take Kozlowski's valuation as a hard indication of value, which I don't know why you wouldn't given what we know about Koz, then only the price has gone down this much, not the intrinsic value of the unit.

As for Breen, his reputation was built at GIC, not Motorola. Just because some analyst said it was Motorola doesn't mean that's the case. This is a straw-man argument, in my opinion.