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Tyco International

In: Business and Management

Submitted By matte646
Words 11234
Pages 45
9-798-061
REV: MAY 31, 2007

CYNTHIA MONTGOMERY
ROBERT KENNEDY
LISA CHADDERDON
HAROLD F. HOGAN, JR.

Tyco International
On October 6, 1995, Tyco International, a diversified U.S. conglomerate, received some very unflattering news. A respected investor monitoring organization, the Council of Institutional
Investors (CII), had included the firm in its list of the 20 worst-performing S&P 500 companies. CII generated its list annually, based on a mechanical formula that calculated total shareholder returns over a five-year period.1 One commentator described the annual rankings as “the corporate equivalent of being put on the school detention list.”2
The choice of Tyco as one of the 20 culprits was quickly challenged. Tyco’s own management described the result as an artifact arising from an abnormally high share price during a narrow window at the start of CII’s measurement period. Robert Monks, head of Lens, Inc., an activist money management firm and former member of Tyco’s board of directors, also took exception to the report. In a letter of protest to the executive director of CII, Monks asserted that based on his own experience, he believed Tyco was a responsible company fully committed to enhancing shareholder value. He wrote: “On balance we conclude that this is a first-rate company successfully adding value in the difficult mode of a conglomerate. Our criteria [for evaluating] companies ultimately is—what can we, as informed and effectively involved owners, do to enhance value? Our answer in the case of
Tyco is—virtually nothing. What are we missing?” (See Exhibit 1.)
Was Monk’s belief in Tyco justified? Or had the conglomerate form of organization in fact become outdated? Tyco’s Businesses
Tyco International was a diversified manufacturer based in Exeter, New Hampshire. In fiscal
1996, it had sales of $5 billion and net income of...

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