RealTime IT News

Tyco Looks to Unity

Tyco International Ltd. Executive Chairman L. Dennis Kozlowski's hopes for an independent undersea cable company were officially put to rest Thursday after his announcement to buy back the 11 percent of publicly-owned TyCom stock.

The buyback proposal, valued at $784 million, is less than half the value of TyCom stock at its initial pubic offering (IPO) last July.

A special committee has been formed to advise public shareholders of their options before the buyback is approved, to avoid any appearance of impropriety.

Tyco owns 89 percent of TyCom stocks, the remaining 11 percent distributed to minority public shareholders. The deal represents the buyback of approximately 56 million common shares. Before the market opened Thursday morning, shares of TyCom stock were trading at $14 - less than half than its $32 IPO value last July.

Tyco's boss, who's multi-billion operations span holdings in fire protection and security equipment systems, as well as medical supply equipment, had high hopes to reap the rewards associated with broadband Internet communications.

He spun off his undersea cable installation, sales and service arm with the hopes that large, national carriers would want to pick up international traffic, the result of the high-tech's world increased dependence on the Internet for consumer and corporate needs. Expected demand for high-capacity bandwidth pipes for voice over IP (VOIP), virtual private networking (VPNs) and videoconferencing also fueled the industry giant's need to go public.

Instead, little more than a year later, Kozlowski is offering to buy back stock from his flagging fledgling company at nearly half its original value, the result of unmet bandwidth sales expectations. Tyco picked a bad year to go public.

Although the company went public in July, plans for going public dated back to a time when the stock market demand for any type of bandwidth provider was high. By the time TyCom had their IPO, the dotcom bubble was beginning to deflate. The severe scale back in the high-tech sector, coupled with the current recession, dried up most bandwidth deployment budgets.

TyCom revenues and sales have suffered in that year, also. It's operational expansions, funded by the IPO, weren't justified. In the company's latest financial report in early July, officials announced a 7.7 percent decrease in its earnings before interest, taxes, depreciation and amortization (EBITDA), on top of net revenue drops of 13.4 percent and increased sales and marketing expenditures.

Still, Kozlowski said in a statement, he remains optimistic about the company's long-term health as a subsidiary.

"Tyco remains committed to TyCom even though the environment for broadband telecommunication stocks has changed dramatically since the time of the initial public offering of TyCom," he said.