Part of Tyco's Break-Up Value Already Realized in Today's Prices

Tyco (TYC-NYSE) is one that has finally shed its old corrupt image and is now in the ‘pending’ file of companies that are in the break-up group.  The stock has traded back above $30.00 back for a long period of time in 2004 to 2005, but it has never been able to reclaim its hay-day values back when it traded between $40.00 and $60.00 from 1999 to early in 2002.  This is all after the stock spent most of the last 18 months under $30.00.

We have noted this one on numerous occasions about the pending break-up and much of the value can be seen in Tyco in its SEC filings for the break-ups into three units.

Back on January 23, Jim Cramer had said he thought that the additional value to shareholders in the break-up would be about 10% on the low-end and 30% on the high-end in additional value than the overall conglomerate value at the time.  The stock was under $30.85 at that time and it closed up at $33.21 yesterday. 

This morning after Tyco beat earnings its shares were indicated up around $33.50 and are now back around the $33.15 mark.  What is interesting here is that there has already been a 6% run in roughly two weeks, so 60% of that lower-end appreciation is already implied in the stock.  Tyco did beat earnings this morning, but right now the street is trying to evaluate this on a basis of what the when-issued companies will look like.

This shouldn’t really imply that all of the upside has been taken out of the stock, but some of the upside has already been realized.  The argument can always be made that this is finally just catching back up to the market performance, and it is no longer applicable to compare Tyco to the likes of a General Electric (GE-NYSE) and 3M (MMM-NYSE).

Jon C. Ogg
February 6, 2007