Updated from July 25
Edward Breen's reputation as a turnaround executive is preceding him in the stock market.
, which Thursday named Breen its new chief executive, saw its shares jump 28% to $10.60 on the news. The issue was the most active on the
New York Stock Exchange
, where Breen was previously president, saw its shares drop 9.9% to $10.98.
Breen's appointment -- which was greeted with shock by Motorola analysts -- ended a month-long executive search that began when former Tyco CEO Dennis Kozlowski was ousted just before being arrested for allegedly evading sales tax.
The 45-year-old Pennsylvanian has been overseeing an extensive restructuring at Motorola since being named chief operating officer and president of the semiconductor and cell-phone giant in January. He came up the ranks at the former General Instrument, starting as a salesman in 1978 and becoming chief executive by the time it was acquired by Motorola in January 2000.
Breen won high marks for his role in that $11 billion deal. He was widely expected to leave after the merger, but he stayed on as a division head at the newly merged Motorola, and many other top executives at General Instrument followed his lead. He was later rewarded for his loyalty with the appointment to president and COO.
"I think Ed Breen put a lot more credibility back into the business," said Morningstar analyst Todd Bernier. "He's very much a born leader."
Breen reportedly was courted to lead
, the struggling maker of telecom equipment. But he turned the position down,
The Wall Street Journal
reported, afraid that the company might not survive. He evidently overcame such concerns about Tyco.
A Hard Job
At Tyco, he faces perhaps the most daunting task in corporate America: restoring investor confidence in a far-flung conglomerate whose management has seen its credibility almost systematically destroyed in the past 12 months.
The company continues to be dogged by concerns about its complex financial structure, a by-product of Kozlowski's ambitions to create one of the world's largest companies through acquisition. The latest worries center on its liquidity and enormous debt burden, although Tyco executives remained confident Wednesday that the situation was under control.
Predictably, analysts were baffled as to why Breen would want to run Tyco.
"I was really surprised to hear that he is leaving Motorola," said Michael Walkley, an analyst at RBC Capital Markets, who covers the cell-phone manufacturer. "He has been credited with a turnaround there."
Walkley said that the departure was in fact a loss for Motorola, which hosts its analyst day next Tuesday. But that could be Tyco's gain. "He is seen as a manager who can come in and effect rapid change."
As for Motorola, "It's just a humongous loss for a company in desperate need of leadership," said Bernier.
Tyco's shares fell more than 17% to $8.25 Thursday as executives were again forced to appeal to the public for calm, this time denying rumors the company was at risk of a bankruptcy filing. In after-hours trading, Tyco rose $1.80 to $10.05, while Motorola fell $1.43 to $10.75.
"The rumor we have engaged with bankruptcy attorneys is false," said Mark Swartz, Tyco's CFO, on a call scheduled held prior to the Breen announcement.
Swartz tried to emphasize Tyco's strong cash position and said that the company plans to file newly required
Securities and Exchange Commission
certifications related to its financial statements.
"At the beginning of the quarter, we had $7.2 billion in available cash," Swartz said on the call. He also said Tyco would repurchase $2 billion in debt in the fourth quarter at a $200 million discount. By the end of the quarter, Swartz said, the conglomerate expects to have $18 billion in net debt.
During the third quarter, Tyco raised $4.4 billion through its spinoff of financing unit CIT. Earlier in the year, the conglomerate had planned to break up the company into health care, fire and flow control, security and electronics, and security and electronics businesses. But only the CIT spinoff went through.
On the call, Swartz said people were confusing the size of Tyco's cash position by saying it does not include acquisitions. According to the CFO, its cash flow takes purchases into account through the first quarter.
Tyco said it expects to earn 45 cents to 47 cents a share in the fourth quarter, before special items. Analysts were expecting Tyco to earn 46 cents, according to Thomson Financial/First Call. Full-year earnings are expected to be $1.99 to $2.01 a share before charges; analysts were predicting $2.02 a share.