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Non-Tech : Tyco International Limited (TYC) -- Ignore unavailable to you. Want to Upgrade?

To: blankmind who wrote (3418)	6/17/2002 8:22:32 AM
From: John Carragher	Read Replies (2) \| Respond to of 3770

Tyco valuations might not stand scrutiny By Tim McLaughlin Reuters BOSTON - Tyco International Ltd.'s aggressive valuation of its investments would wither if scrutinized by regulators or a new regime, which could trigger bank covenant violations and asset sales, and irreversibly change the sprawling conglomerate's course, analysts said. Some analysts privately say Tyco could be one or two big-ticket write-downs away from exceeding a key 52.5 percent debt-to-capital ratio with banks. The effect of exceeding the covenant would take debt decisions out of Tyco's hands and give them to creditors, who could demand asset sales and onerous finance terms. One area of concern for a write-down is at Tyco's electronics business, whose profits plunged 58 percent in the March quarter. Tyco has moved aggressively to build up its electronics division, namely with the 1999 acquisition of AMP Inc., of Harrisburg, Pa., for $11.3 billion. U.S. regulators forced Tyco to cut the $11.3 billion valuation of its finance unit CIT Group Inc. to $6.5 billion last week, confirming in some quarters the worst suspicions about Tyco's accounting for goodwill. "You have significant questions about their accounting for hundreds of acquisitions and corporate-governance issues," said Sean Egan, managing director at independent ratings agency Egan-Jones Ratings Co. "When you're a conglomerate, you're supposed to add value, but CIT is being offered at half the price it was bought for a year ago," Egan said. "That begs the question of whether Tyco's other businesses are worth as much as they appear on Tyco's books and whether the banks will be willing to waive covenants if they're not." Reductions in goodwill, carried on the balance sheet as an asset, give Tyco less headroom under bank covenant caps on debt to capital. Even after the CIT write-down, Tyco still carries about $30 billion of goodwill on its balance sheet as of March 31. Goodwill is the difference between what a company pays for an acquisition and the fair value of the underlying liabilities and assets of what it bought. If Tyco fails to meet cash-generation forecasts, a key factor in justifying an investment's value, it would create additional credit risks at the Bermuda-based company, according to analysts at Fitch Ratings. Tyco's bloated goodwill balance is part of the legacy of former chairman L. Dennis Kozlowski, who spent more than $60 billion during a 10-year acquisition spree that made Tyco into one of the world's largest conglomerates. Kozlowski abruptly resigned this month before being indicted on criminal tax evasion charges. He has pleaded not guilty. As Glenn Reynolds, an analyst and chief executive officer at CreditSights Inc., explained, goodwill impairment charges are not an exact science, and a company's hand tends to get forced on write-downs when assets are put on the block for sale. Newly hired chief executives also scrub their company's balance sheet to sever links with the ways of the old regime. CIT's hefty valuation had resided safely on Tyco's balance sheet, but when the conglomerate moved to sell the finance company in an initial public offering, CIT's goodwill became an issue. Lehman Brothers offered $5 billion for the business, but yanked that offer when it became public. "The market clearly sees that [Tyco's] goodwill number is no longer a number with a reasonable foundation, and that newly revised $29 billion number is very soft and exceeds equity," Reynolds said. email this \| print this Shopping & Services Find a Job Find a Car Find a Home Find an Apartment Classifieds Ads Shop Nearby Stocks Enter symbol/company name News \| Business \| Sports \| Entertainment \| Living \| Classifieds Help \| Contact Us \| Site Index \| Archives \| Place an Ad \| Newspaper Subscriptions About Philly.com \| About Realcities Network \| Terms of Use \| Press Center \| Copyright