September 17, 2012 / 12:36 PM / in 5 years

UPDATE 2-Tyco shareholders approve three-way break-up

* Stockholders OK spinoff of ADT and flow control businesses

* Distribution date set for Sept. 28

* Trims sales outlook, citing China contracts

* Shares nearly unchanged

By Nick Zieminski

NEW YORK, Sept 17 (Reuters) - Tyco International Ltd shareholders have approved a breakup of the industrial conglomerate into three pieces, the company said on Monday.

Tyco has said the tax-free split, the second time since 2007 that it has slimmed down, would bring more options for growth to the businesses -- ADT North American residential security, flow-control products and services, and fire and security.

The flow-control business, which sells valves and controls for the energy market, will merge with Pentair Inc, which will be renamed Pentair Ltd and be majority-owned by current Tyco shareholders.

Tyco will combine its commercial fire and security businesses into “New Tyco,” which will include the ADT brand outside North America and trade under Tyco’s symbol.

For every 100 existing Tyco shares, stockholders will receive 100 new Tyco shares, 50 shares in the ADT business and 24 shares in the flow-control business.

The breakup will complete a decade-long transformation of a diversified conglomerate under Tyco Chief Executive Officer Ed Breen, who will step into nonexecutive advisory roles.

Under Breen, Tyco spun off its electronics division, now called TE Connectivity, and the healthcare company now named Covidien PLC in 2007. He then greatly expanded Tyco’s security business with the $1.9 billion acquisition of Broadview Security in 2010.

Shares of Tyco were down 0.1 percent at $55.20 in early trading after the company trimmed its forecast for two divisions.

Tyco said it might not be able to collect on security contracts in China and would take a charge of $40 million to $60 million to boost its reserve. Fire and security revenue will be reduced by about $25 million in the fourth quarter, which ends this month.

In the ADT business, Tyco forecast lower operating margins this quarter, citing legal costs. It had earlier said it expected margins to rise.


Investors have cheered the break-up. Tyco shares have gained almost 40 percent since the plan was laid out in September 2011, beating both the Standard & Poor’s 500 and the company’s industrial peers. Pentair shares are up about 12 percent since that deal was announced in March.

The flow control and fire and security businesses will remain industrial companies, but ADT is a bit of “an odd duck,” said Vertical Research Partners analyst Jeff Sprague, who sees cable and telecommunications companies as ADT’s peers.

Vertical Research analysts say new Tyco will have an enterprise value of about $17.6 billion, ADT about half that, and the flow business about $5.3 billion. Estimates of enterprise value are higher in the event of a takeover.

On a pro forma basis, new Tyco had fiscal 2011 sales of $6.04 billion and posted operating income of $960 million. Higher-margin ADT showed $693 million in operating income on sales of $3.11 billion. The flow business earned $306 million in operating income on sales of $3.65 billion, according to a regulatory filing by the soon-to-be-former parent company.

The new stocks will begin trading on a “when-issued” basis this week and start regular trading on Oct. 1, Tyco said.

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