Tyco Calls Off Break-Up Plan

Updated from 7:53 a.m. EDT

Tyco International

(TYC)

abandoned its plans to split into four separate, publicly traded companies, but the conglomerate will offer stock in its finance arm

CIT

through an initial public offering.

The decision to keep its divisions under the same umbrella comes almost three months to the day after Tyco originally laid out the plans to break apart. At the time, Tyco was hoping to do something to calm investors who were demanding more disclosure about the company's complex books in the wake of the

Enron

collapse. The company also said in January that the split would "unlock tens of billions of dollars of shareholder value."

Separately, Tyco reported a loss of $1.9 billion, or 96 cents a share, for the second quarter, including a $3.2 billion charge, part of which was related to the termination of the break-up plan. The quarterly loss ended a string of 40 consecutive quarters of earnings improvement. The company earned $1.1 billion, or 63 cents a share, in the same quarter a year ago. Revenue rose to $9.8 billion from $8.8 billion in the 2001 second quarter.

The company also lowered its earnings and free cash flow guidance for 2002. Additionally, Tyco will cut about 7,100 jobs and close 24 facilities, primarily in the electronics and telecom operations, at a cost of $331 million.

Shares of Tyco ended the previous regular session at $25.90, and the stock was dropping 19% to $21 on the Instinet platform before the bell.

In a letter sent to shareholders, Dennis Kozlowski, Tyco's chairman and chief executive, discussed the move to keep the company's operations together, with the exception of CIT.

"Our rationale for the break-up plan was based on a simple premise. Despite superior growth in earnings and cash flow, Tyco was being valued at a significant discount to its peers," he wrote. "Among the reasons for the discount was the market's unease with highly complex companies that are in multiple business lines with few obvious synergies. By splitting up the company, we saw an opportunity to address these concerns and accelerate the creation of value for our shareholders. But we know now it was a mistake, and it is time for us to return our focus to what we do best."

Though Tyco is planning to sell 100% of CIT through an IPO, the company remains in discussions with potential acquirers.

"By fully monetizing CIT, we can eliminate any lingering perceptions about the company's short-term financial position and create a strong foundation for the future," Kozlowski wrote in his letter. "The divestiture of CIT also simplifies Tyco's business model and returns us to the same core businesses with which we created substantial shareholder value over the past decade."