ADT looks to stay independent after Tyco break-up

NEW YORK Tue Sep 18, 2012 2:37am IST

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NEW YORK (Reuters) - Home security company ADT intends to remain on its own after being spun off in the breakup of conglomerate Tyco International Ltd (TYC.N), its chief executive said in an interview.

Naren Gursahaney was trying to put to rest speculation by investors and analysts that the soon-to-be independent company could be an attractive takeover target for a cable or telecommunications company looking to expand its offerings, or for a private equity buyer.

CEO Gursahaney is well aware of the buzz.

"I'm spending 100 percent of my time building the strategy, building the team (for) a stand-alone company," Gursahaney said in an interview. "We do intend to go it alone. We're going to be a stand-alone public company."

Tyco shareholders on Monday approved the breakup of their company into three pieces: ADT; Tyco's flow control unit, which is merging with Pentair Inc (PNR.N); and a remaining commercial fire and security business. Analysts including Vertical Research Partners' Jeff Sprague said any of the three could be viewed as takeover targets.

Although Tyco will remain incorporated in Switzerland, ADT, with all of its revenues in North America, will be a Delaware corporation with headquarters in Boca Raton, Florida.

As part of the tax-free transaction, Tyco shareholders will receive 1 ADT share for every two Tyco shares they own. Trading is expected to begin on October 1 in its new stock, which will trade on the New York Stock Exchange under the symbol "ADT". Tyco shares will continue to trade as usual, as will those of Pentair.

ADT showed $693 million in operating income in fiscal 2011 on sales of $3.11 billion. Analyst estimates of its market value range from $8 billion to more than $11 billion, with the higher estimates taking into account a takeover premium.

A SECURITY 'PURE PLAY'

With about 6.5 million subscribers in the United States and Canada, ADT will be the only publicly listed U.S. company focused on security monitoring, with a growing business in home automation systems. It will be the largest player in a fragmented $12.5 billion market.

The market penetration could double from around 20 percent of homes to 40 percent, Gursahaney said, closer to the levels of cable and telecom service providers. More than half of Americans have cable service, for example. Only about 1 percent, mostly high-end homes, pay for home automation systems such as ADT's "Pulse" interactive service that includes lighting and thermostat controls.

Those automation services, Gursahaney said, could change the way consumers think about security systems.

"It's a negative experience. You're buying it because you feel you need to have the security system," he said. "As we extend into home automation space, then it's more an issue of 'I want to have this.'"

ADT's business plan centers around attracting, subscribers to a suite of security and related services, such as monitoring cameras installed in one's home from a smart-phone, or personal emergency response services.

"The next generation of consumers wants to control everything through their iPhones," Gursahaney said. "We have to be more of a high-tech company."

BUYER, NOT TARGET, CEO SAYS

ADT grew while under Tyco's umbrella with the $1.9 billion acquisition of Broadview Security in 2010. Rather than seeing itself as a takeover target, it could be an acquirer, he said.

"There could be acquisition opportunity because it's a very fragmented market," he said.

Besides its focus on services in a specific market, another way ADT differs from the diversified manufacturer it sprang from is its lack of geographic diversification. It can expand internationally but the ADT brand outside North America is controlled by Tyco, partly because it's more oriented toward commercial customers.

U.S. and Canadian markets are more mature and more geared toward revenue from subscriptions rather than just installations, ADT said. Selling monitoring services in emerging markets, where infrastructure is often poor, can mean additional costs, such as maintaining armed security forces. The response team in South Korea had martial arts training.

(Reporting by Nick Zieminski in New York; Editing by Patricia Kranz, Gary Hill)

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