As the big cardiovascular players continued to grind on toward some sort of consolidation, titan-sized conglomerate Tyco (Pembroke, Bermuda) on Friday unveiled an opposite strategy. It said it will break up its diverse lines into three publicly traded businesses, one of them being a separate healthcare company.

Bruited for several weeks as in the works, the breakup will create one of the largest healthcare manufacturing entities in the world, Tyco Healthcare. The other two businesses will be Tyco Electronics and Tyco Fire & Security and Engineered Products & Services (TFS/TEPS) at a cost of $1 billion.

Cost of the breakup is expected to be about $1 billion, primarily for tax and debt refinancing.

Tyco said it will create the three companies through tax-free stock dividends to shareholders, after which they will own 100% of the equity in the three businesses.

Tyco said it expects to complete creation of the separate firms by 1Q07, with each remaining incorporated in Bermuda.

Over the past three years Tyco has been recovering from accounting scandals capturing top headlines.

In the wake of these scandals, Dennis Kozlowski, its former CEO, and Mark Swartz, former CFO, were sentenced to prison last year on a variety of fraud and larceny charges. They are appealing their convictions.

Ed Breen, CEO and chairman of Tyco, in a conference call early Friday, didn't detail these problems specifically, but said that that the three-part spin-off was part of the company's “second phase of its turn-around.“

He noted a variety of changes in corporate governance and reorganization of multi-billion-dollar debt and said that Tyco has more recently created an “operating culture that puts growth and operational excellence at the top of the agenda.“

The break-up into separate companies, he said, would allow “each business to take more aggressive, quicker action“ to capture “growth opportunities“ — among them, the ability to pursue improved financing and product partnerships.

Breen said that the company had been looking at these possibilities since spring of 2005 following the resolution of “financial and liquidity crises.“

The company is also known to have been considering this path four years earlier.

In a statement, the company said that its board and senior leadership had looked at a variety of options — including continuing its “current operating strategy“ as well as spin-off of some of its many businesses and separation of just one of its businesses and concluded that separation into three companies was the best course for improved shareholder value.

It said that creation of Tyco Healthcare — with 40,000 employees and producing revenue of nearly $10 billion in 2005 — “will create a leading stand-alone healthcare company, which is expected to benefit from a focused and independent healthcare culture to help attract top industry talent and strategic partners, as well as increasing access to emerging healthcare-related technologies.“

It said that the business will be led by Rich Meelia, its current president, who will become CEO. Kevin Gould, chief operating officer, and Chuck Dockendorff, CFO, will continue in these positions with the independent company.

Tyco Healthcare's portfolio includes advanced surgical instruments and supplies, respiratory care products, contrast media and diagnostic imaging products, needles and syringes, vascular therapies, sutures and wound care products, and generic pharmaceuticals.

Once the creation of Tyco Healthcare is accomplished, observers will be interested in watching how it develops its already broad range of products — through the conglomerate's past strategy of gobbling up various healthcare manufacturers, or via internal R&D, the latter strategy bannered by company officials in early 2004 (Medical Device Daily, Jan. 24, 2004).

Tyco Electronics, with $12 billion in yearly revenue and 88,000 employees, is a major provider of an area of electronics components. The CEO will be Tom Lynch, current president of Tyco's Engineered Products & Services segment.

TFS/TEPS — perhaps best known for its ADT home alarm systems — produces $18 billion in sales and has 118,000 employees. It will be led by Breen.

The three entities together are initially expected to pay a dividend that is equal in sum to the current Tyco dividend. Until the planned transactions are completed, Tyco said it will pay its current quarterly dividend of 10 cents a share. It said its existing debt is expected to be allocated among the three companies or refinanced.

Tyco said it expects 1Q06 earnings per share to be about 38 cents a share. This is a reduction from its previous guidance of 40 cents to 42 cents a share.

It said the reduction in guidance was the result of weaknesses in its fire and security and its healthcare areas.

Shortfalls in healthcare, it said, were the result of problems in its imaging and respiratory businesses, “primarily the impact of voluntary product recalls and regulatory compliance issues,“ plus capacity problems in pharmaceutical production.

For the full year 2006, the company is now expecting EPS to be in the range of $1.85 to $1.92 per share.

Despite the reduced guidance, investors appeared to respond positively to the proposed strategy, with the company share price rising 29 cents, just over 9% at the end of trading Friday.

The company said, as it earlier reported, that it will release its full first quarter results on Feb. 2.