ADITYA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The fire protection and security company, Tyco International Ltd. (NYSE: TYC) on last Wednesday reported its fiscal-fourth quarter earnings estimates slightly beating analyst’s revenue expectations but fell short of their earnings estimates.
Revenue in the current quarter was $2.7 billion, 2.5% lower than last year’s similar quarter. The decline in revenue is due to the negative impact related to foreign currency. The extra week of operations in 2011 has offset the additional revenue related to acquisitions. The loss per share from continuing operations to Tyco’s shareholders is $1.36, which includes special charges of $1.69 relating to redemption of debt in anticipation of the separation, other separation-related charges and restructuring charges.
Benefit From Separation
This year has been very good for the fire and security businesses and Tyco has grown both organically and inorganically through acquisitions. Expansion of segment operating margins and the separation of Tyco into three companies were successfully completed this year.
The split-up of the company can prove to be of great benefit for the new Tyco. It can now leverage its portfolio of fire and security products and service solutions on a global scale of operations which should enhance its position in the industry and thereby drive operational results to outperform.
Tyco International in its latest reshuffle will become three separate businesses: a US-based residential security company, a non-US-based flow control products and services group and a Switzerland-based commercial fire and security business. The reshuffle will help Tyco accelerate organic revenue growth by strong growth in products, accelerated service growth and increased presence in high-growth markets. I feel that the only problem that may arise with the split-up is that Tyco now becomes averse to the threats of acquisitions with General Electric (NYSE: GE) finding its flow control business attractive while United Technologies might be interested in its fire and security business. Also worth mentioning is 3M (NYSE: MMM), another large conglomerate with a considerable presence in the Safety, Security & Protection and Electro & Communications sector. It is amongst those few who can compete with Tyco in size and volume.
About the Potential Acquirers
General Electric might not just be a potential acquirer of Tyco but it has numerous strengths that can trouble Tyco International. General Electric, with almost ten times the market capitalization of Tyco, has tremendous presence in the global market. GE also has an interesting history of acquiring and selling off companies in order to maximize its profits and revenues and take advantage of various industry and market situations at any point of time.
An interesting fact regarding 3M Company is that its using the same strategy for expansion once adopted by Tyco to reach its prime. 3M has geared up acquisitions of smaller international companies to spur overseas and portfolio expansion in the last few years and I feel that Tyco’s separation must be under their close watch although emerging markets seem more lucrative. Their large international presence and huge foreign turnover makes them enjoy a weak dollar; another common factor that binds them alike.
The investors should not be scared of the numbers as they are purely driven by special items and do not reflect the strength of Tyco. Organic and inorganic growth should strengthen the company’s global footing and improve its technology and innovations. Tyco has a strong balance sheet with the potential to deliver better margins and is a market leader in the global fire and security industry because of its in-depth industry experience. The company appears to be a good investment supported by its numerous strengths.
adityaladha has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company. Motley Fool newsletter services recommend 3M Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!