may have to pay as much as $1.7 billion to theInternal Revenue Service to settle an investigationfocusing on allegations that the companyfailed to pay sufficient taxes, according to a personfamiliar with negotiations between the IRS and Tyco.
It is not clear when a settlement between the IRS andthe company might be announced, but indications thatTyco may have to pay such a large sum to the governmentcould hamper the company's efforts to raise billionsof dollars in new funds by February of next year, when$3.9 billion of bank debt comes due, as well as $2.3billion of convertible bonds. Tyco has $12 billion ofdebt and other obligations maturing in 2003.
The IRS and Tyco also have not yet agreed on anexact sum Tyco should pay, according to the personfamiliar with discussions. But while the IRS feels itcould be owed more than $1.7 billion, it is preparedto settle close to that figure, this person says.
Tyco didn't return calls seeking comment, though a company spokesman told other news organizations that "it's not true we are in any such negotiations." A former press spokesman who still works for the company declined to comment, saying he was no longer authorized to speak to the media. IRSrepresentatives could not be reached.
Because Tyco is based offshore in Bermuda, it hasenjoyed an income tax rate well below the statutoryU.S. rate. The impact of the company's offshore statuson its tax bill may have been a natural target forinvestigations conducted by government and lawenforcement agencies.
Any back-tax settlement also would include a commitment by Tyco to move its legal domicile back tothe U.S., according to the person familiar with thetalks. The company's Bermuda registration came aboutin 1997, when it conducted a merger with securitycompany ADT, which already had a Bermuda domicile.
The troubled conglomerate is also being probed by the
Securities and Exchange Commission
and the Manhattandistrict attorney. The latter has accused Tyco'sformer CEO Dennis Kozlowski and ex-finance chief MarkSwartz of looting the company.
In addition, Tyco'saccounts are currently being reviewed byPriceWaterhouseCoopers as part of its regular fiscalyear-end audit. And, facing suspicions among investorsthat former managers cooked the company's books, Tyco'snew management set up an internal probe under outsidelawyer David Boies.
Dow Jones Newswires
reported Wednesday that thecompany was in talks with Morgan Stanley and Bank ofAmerica for a $1.5 billion loan with a one-year term.This could represent a move to raise money to pay offany outstanding back taxes.
Until last year, Kozlowski and Swartz enjoyed strongreputations as visionary managers, and Tyco enjoyed amarket worth of more than $100 billion. But fraud chargesagainst the executives, a slowdown in Tyco's mainbusinesses, a cash squeeze, and allegations that Tyco'saccounting is not clean have crushed the stock thisyear.
Under its new CEO Ed Breen, however, Tyco hasrallied strongly off its yearly lows as investors havebet that investigations won't turn up anything thatwould imply the company is far less profitable thanits books suggest.