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When Dennis Kozlowski announced plans to break up Tyco International Ltd. in January 2002, it marked the beginning of a fall from grace for the since-departed CEO and the conglomerate he built. Three years later, Wall Street is likely to be much more receptive to a breakup plan. During a conference call with investors on Wednesday, officials at Bermuda-based Tyco sparked speculation of a renewed push to spin off some of its units. CEO Edward Breen, who replaced Kozlowski in July 2002, expressed his impatience with what he believes is the undervaluation of Tyco shares, and he pledged that a “full range” of options are being considered to boost the stock. Many on Wall Street took that as a sign that Tyco, an amalgamation of health care, industrial, electronics and other assets cobbled together by Kozlowski, is considering spin-offs. Shares of the company were up 4 percent, or $1.10, on Thursday, to $28.50, despite the company reporting quarterly results that missed analyst revenue expectations. Kozlowski’s original breakup plan was abandoned only months after it was announced, and the executive soon after became embroiled in a tax and accounting scandal that eventually landed him behind bars. Under Breen, Tyco has struggled to win back the trust of investors and boost its flagging share price. Analysts said Thursday that while a breakup is possible, Tyco is likely to focus initially on more modest measures to boost profitability. The company is in the final stages of selling off a group of roughly 50 business units with a combined revenue of about $2 billion — a process initiated shortly after Breen took over — and is expected to announce a sale of its plastics and adhesives business for more than $1 billion before year’s end. Tyco also said it intends to close 16 electronics factories over the next two years in a move to streamline operations. “We continue to believe Tyco’s next big step will likely be a significant reshaping of the company’s asset portfolio,” Prudential Equity Group analyst Nicholas P. Heymann wrote Thursday in a research note. “However we increasingly sense this is unlikely to happen in the immediate near-term but rather could become the focus of the company over the intermediate term, perhaps midfiscal year 2006.” Should the company turn to large divestitures, Tyco watchers point to the company’s ADT home and business security unit as among the assets most likely to be sold. “ADT has a well-established independent brand, and Tyco has spent a lot of time and effort cleaning up lingering issues inside it,” one source said. “It would be a very attractive asset for a private equity buyer.” ADT represents a sizable portion of the company’s $11 billion fire and security business. Other potential targets for divestiture could include the telecommunications portion of Tyco’s electronics business or its $9 billion health care business. The talk comes at a time when other conglomerates are rethinking the business model. Travel and real estate company Cendant Corp. in October announced plans to split itself into four independent companies, a move CEO Henry Silverman attributed in part to his opinion that Wall Street had failed to recognize the value of the combined entity. Even General Electric Co., while keeping the conglomerate model, has in recent years been pruning less profitable divisions such as its extensive insurance operation and using the proceeds to expand in faster-growing areas. Copyright �2005 TDD, LLC. All rights reserved.

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