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Tyco Stock Drops on Payment News

Conglomerates: Already-jittery investors see conflict-of-interest questions in a large fee paid to a director for help with an acquisition.

January 30, 2002|From Bloomberg News

EXETER, N.H. — Shares of Tyco International Ltd., battered for weeks on recurring rumors that the company has used aggressive accounting, Tuesday suffered a new blow with revelations that a director received $20 million for helping the conglomerate make a major acquisition last year.

The stock dived $8.35, or 20%, to $33.65 on the New York Stock Exchange, adding to steep losses in recent weeks. The price is at its lowest since 1999.

Tyco paid director Frank E. Walsh Jr. $10 million and contributed $10 million to the Community Foundation of New Jersey, a charity of which Walsh is trustee, in exchange for his help in purchasing CIT Group Inc. last year, according to a filing Monday with the Securities and Exchange Commission.

Some analysts said the payment raises questions about conflicts of interest on Tyco's board as Chief Executive Dennis Kozlowski prepares to break up the company.

The company last week surprised Wall Street with the breakup announcement.

Analysts said part of Kozlowski's motivation in splitting the firm into four independent business units was to do away with talk that the company had used aggressive accounting to boost its earnings in recent years.

The news about the director's fee "is just one more thing that increasingly has people saying, 'The heck with this, I'm going to move on,'" said John Waterman, a money manager at Rittenhouse Financial, which owns about 13 million Tyco shares. He said he isn't selling his shares, however.

"The fee was paid to Mr. Walsh because he was instrumental in bringing about Tyco's $9.2 billion acquisition last year of CIT," Kozlowski said in a statement.

"The board felt that fee was appropriate in light of Mr. Walsh's efforts."

Even though the board unanimously approved the purchase, the payment still raises conflict-of-interest questions, corporate governance experts said.

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