Tyco not to break up, retain plastics arm
By Venkatachari Jagannathan | 29 Apr 2002
Now
Tyco intends to divest 100 per cent of its ownership interest in
its commercial finance arm, the CIT Group Inc, through an initial
public offer (IPO). Tyco has also reduced its earnings and free
cash flow estimates for this fiscal year and is taking pre-tax
charges, totalling $3.3 billion, primarily for write-downs in its
telecommunications business.
Tyco is the worlds largest manufacturer and servicer of electrical and electronic components; the worlds largest designer, manufacturer, installer and servicer of undersea telecommunications systems; the worlds largest manufacturer, installer and provider of fire-protection systems and electronic security services; and the worlds largest manufacturer of specialty valves.
The group, operating in more than 100 countries, also holds strong leadership positions in disposable medical products, financing and leasing capital, plastics and adhesives. The electronics and undersea cable businesses are suffering the effects of a cyclical downturn.
Standard & Poor''s analyst Cynthia Werneth, who tracks the group, believes if the CIT IPO is successful, Tyco should have sufficient liquidity during the next 18 months to meet scheduled and potential public and bank-debt maturities. Tyco currently has about $27 billion in debt. But an unsuccessful IPO will force Tyco to seek alternative financing arrangements to meet financial obligations during calendar 2003, heightening refinancing risk.
On the issue of Tyco improving its credit rating, she says it hinges on several factors. Assuming that industry and competitive conditions do not worsen, and bank line availability is expanded, the expeditious sale of CIT could result in Tycos ratings being raised to BBB-plus and A-2. Conversely, the inability to access capital markets during the next several months could result in a downgrade.