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.
