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Non-Tech : Tyco International Limited (TYC)
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To: John who wrote (878)12/9/1999 1:05:00 PM
From: Terrapin  Read Replies (1) of 3770
 
Hi John,

Thanks for posting the scenarios; gives the thread something to focus and build on during this turbulent situation. Here's my spin:

Scenario 1: Tice's assertion that Tyco has "accounting irregularities" is proven to be true by the SEC inquiry.

From my memory of the report (of which I only had access to snippets) the original accusation was very mild. The author went out of his way on many occasions to state that he found no fraud. He did not open himself to legal solutions. I hope somebody can correct me but that was my impression. So I think the first scenario could be broken into two possibilities:

A) The SEC confirms aggressive but legal use of pooling accounting that could be construed as "misleading" and for which Tyco would not have to admit wrongdoing.
B) The SEC uncovers something new that they can stick to Tyco's accounting. [This is the real risk IMHO. Pooling accounting is a complicated thing and the SEC auditors are not idiots]

I may be splitting hairs here because the market reaction to either of the above would be vastly similar.

Scenario 2: Tyco's assertion that they do not have any "accounting irregularities" is proven to be true by the SEC.

If this happens then I would hope that Tyco management gives the media the full court press to trumpet the exoneration. Unfortunately I have to agree with whoever said that the momentum crowd is not likely to jump quickly back into this one. Remember that the glowing recommendations are coming from SELL-SIDE analysts who have an incentive other than our own. This stigma will last for many quarters and people nowadays are not willing to wait around when there are rockets out there that double in a week.

But remember that nothing has changed for the company since Tuesday. If you were convinced that the Tice report was rubbish then you must look upon this as a was for Tyco to get some official clearance from the Tice-effect. Could they find something else? Sure. Is it strange that one man's report would have such a long lasting effect in the first place? Sure. Am I watching years of adherence to a Buy&Hold strategy get trampled? Sure feels like it.

May you live in interesting times,
Terrapin
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