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Tyco Raises $4.6 Billion in IPO

Conglomerates: Firm settles for half of what it paid for its CIT Group, but it will be able to make debt payments. Shares rise on the news.

July 02, 2002|From Reuters

Tyco International Ltd., in a bid to ease its heavy debt load, raised $4.6 billion on Monday in an initial public stock offering of its CIT Group, settling for half of what it paid for the finance company a year ago.

Tyco sold 200 million shares for $23 each, below the expected range of $25 to $29, according to a banker involved with the sale. The sale was a reality check on the company's valuations, raising $400 million less than the low end of the range recently expected by CIT.

"It's really disappointing," said Brian Bruce, a money manager at Boston's PanAgora Asset Management Inc. "How can it be worth what it was and then be turned around for a fraction?"

Considering Tyco's need for cash, the sale is better than no sale at all, investors said. Tyco's stock moved up 2% to $14 in after-hours trading on news the company will be able to meet upcoming debt payments. The shares closed at $13.75, up 24 cents, on the New York Stock Exchange.

CIT shares will begin trading today on the NYSE under the ticker symbol CIT.

Even at the lower price, the CIT offering was the fourth-largest IPO in the U.S., according to Bloomberg News.

Initial stock offerings have been hampered by the weak stock market, especially in recent months as corporate accounting scandals have disillusioned investors.

CIT, which provides corporate and consumer financing services, also had to deal with the shadow cast by management scandals at its parent.

Unlike other IPO candidates that have been able to delay their sales, Tyco needed to sell CIT to help pay $7.7 billion of debt coming due within the next year and a half.

The offer price has been reduced on another high-profile IPO--Merck & Co.'s $1-billion sale of its pharmacy benefits manager, Medco Health Solutions--and on Monday that sale was postponed for a second time. Merck, a member of the Dow industrials, fell $1.89 to $48.75 on the NYSE.

Tyco had promised investors it would sell CIT promptly to reduce its $27-billion debt burden. Until last month, Tyco valued CIT at more than $11 billion on its books, more than double what the market was willing to pay.

The concern now is that Tyco's other businesses could be subject to big-ticket write-downs, which could bring the company closer to exceeding a maximum 52.5% debt-to-capital ratio it had stipulated with lenders.

In June, the SEC forced Tyco to cut its $11.3-billion carrying value of CIT to $6.5 billion to reflect "goodwill" impairment. Tyco will have to reduce CIT's valuation by about $1.9 billion more to reflect Monday's IPO pricing.

The CIT sale attracted some holders of Tyco stock, who have a vested interest in seeing CIT sold successfully, said people familiar with the sale.

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