RealTime IT News

TyCom: It's a Small World After All

Increasingly, mega companies are spinning off their divisions to the public. Why? First of all, the IPO market for Net companies has been dwindling, at least for newer companies. Investors now want proven companies. Second, big companies can raise substantial amounts of money from spin-offs. And spin-offs can provide incentive to employees and focus on the company (that is, less bureaucracy).

Now Tyco International is going to enter the spin-off fray. Actually, Tyco is a behemoth, with about a $79 billion market cap. The company is a diversified manufacturing and service provider for electrical components, medical supplies, security systems and so on.

With infrastructure companies red hot, Tyco will sell about 43 million shares of TyCom. The lead underwriter is Goldman Sachs and the price range is $26-$30. The proposed ticker symbol is TCM.

TyCom is a turnkey supplier for fiber networks and services. So far, the company has designed and manufactured over 350,000 kilometers of undersea cable (no other supplier has done this). It is, appropriately enough, called the TyCom Global Network.

TyCom was part of an acquisition from AT&T in 1997. At that time, annual revenues were $375 million. Now, they are in excess of $1.6 billion. Net income was $163 million. What's more, the backlog is $3.2 billion.

The company is an innovator. The TyCom Laboratories is world-renowned (its origins were the Bell Labs). The engineers have been able to bring about new solutions for enhancing the bandwidth of fiber optics (especially over long distances).

Even though TyCom is a massive company, it is still nimble. The company understands that time-to-market is essential. Delivery time for network design and installation went from 24 months in 1997 to 12-18 months.

By all accounts, global data traffic is a huge growth business. According to research from Ovum, transatlantic traffic volume is expected to grow at a compounded rate of 102% from 2000 to 2005.

The goals of TyCom are ambitious. The company plans to have a network that covers six inhabited continents, which will be enough to reach most of the world's population.

Because of the size of the offering, there will probably not be a huge price increase in the IPO. But then again, the long-term prospects of the company look attractive.