Tyco Stock Soars, Market Applauds New CEO
By Tim McLaughlin and Svea Herbst-Bayliss
Friday July 26, 3:22 pm Eastern Time
BOSTON (Reuters) - Edward Breen, the new chief executive of Tyco International Ltd., got an early vote of approval on Friday when its stock surged 47 percent on hopes he can restore confidence in the battered conglomerate.
But Breen, who was appointed CEO on Thursday in a surprise move after being hired away from Motorola Inc. (NYSE:MOT - News), where he was a well-regarded president, faces a daunting to-do list.
One of his most pressing issues is to clear the air over Tyco's accounting on numerous acquisitions once and for all, analysts said. Concerns about accounting and corporate ethics have stripped $90 billion in market value from Tyco this year.
"Breen can restore investor confidence," said Steve Altman, a credit analyst for Commerzbank Securities. "He needs to talk to big customers, vendors and employees to really say, 'Look, we have to do things by the book, no nonsense."'
Breen told Reuters in a brief telephone interview that he plans to start work at Tyco on Monday.
"I can't take a vacation. I'm too charged up," Breen said from his home in New Hope, Pennsylvania.
Tyco's stock soared $3.70 to $11.95 in afternoon trade on the New York Stock Exchange, boosted in part by a Standard & Poor's research note, which called Breen's appointment a "positive development." However, S&P said Tyco and its units remain on credit watch with negative implications.
CALL FOR TRANSPARENCY
For the past seven months, Tyco has been unable to shake persistent worries over its accounting. While Tyco has steadfastly defended its accounting as proper, many investors find its financial statements opaque and misleading.
Breen has vowed to boost Tyco shares while embracing the highest standards of corporate governance.
"With new management now in place, we think a critical obstacle to unlocking shareholder value has now been removed," Merrill Lynch analyst John Inch said in a research note. He described Breen's hiring as a "coup," but said risks remain from "on-going questions regarding Tyco's accounting."
Tyco's list of woes is long and worrisome. Suppliers are squeezing Tyco with stricter payment terms, and it must convince banks to refinance debt to help close a $1.5 billion funding gap on obligations that come due in November 2003.
Gimme Credit, a fixed-income research firm, said the funding gap could swell to $3.3 billion if more conservative cash flow assumptions are used than Tyco's forecasts.
Breen, a churchgoer still married to his college sweetheart, replaces longtime Tyco Chairman and Chief Executive Dennis Kozlowski, who flew helicopters and sailed yachts.
Kozlowski resigned last month, just before he was charged with tax evasion. His criminal indictment ended a 10-year reign in which he spent more than $60 billion to build Tyco into a sprawling conglomerate with about 260,000 employees.
Jim Jungjohann, a CIBC World Markets analyst, described Breen last year as part "rocket scientist" and "used car salesman."
"He's charismatic and cerebral at the same time, and he's got the experience," Jungjohann told Reuters.
HEADS MAY ROLL
Breen has a lot to sell at Tyco, which makes electronic connectors, ADT burglar alarms, diapers and medical supplies.
U.S. fund managers who have watched Tyco fall from grace said they are ready to give Breen the benefit of the doubt that he will clean house and get Tyco back on its feet.
"He's got a lot of personal credibility and the fact that he signs off on the numbers will be an important step to rebuild Tyco's credibility," said Dave Duchow, whose Thompson Plumb Balanced Fund owns 2.5 million Tyco shares.
Tyco, based in Bermuda, is not required to certify the accuracy of its financial statements under new U.S. regulations. But the company plans to do so anyway, but said it will wait until the outcome of an internal investigation.
Investors, meanwhile, nervously await the outcome of investigations by the Manhattan District Attorney and the U.S. Securities and Exchange Commission into Tyco's finances.
"There will be some people at the company who thought the old way was a good way to run the business and they will be fired," said Ronald Muhlenkamp, whose Muhlenkamp Fund owns about 1.5 million Tyco shares. "My guess is that there is a handful of people who will be let go." |
