May 15 (Bloomberg) -- Tyco International Ltd. agreed to pay $2.98 billion to settle investor lawsuits accusing it of inflating revenue, clearing the way for a split into three companies.

Tyco said it will take a charge in the current quarter for the full amount, the fourth-largest securities-fraud settlement in U.S. history and the largest by a single company. The accord comes as Pembroke, Bermuda-based Tyco prepares to dismantle the company built through acquisition by former Chief Executive Officer L. Dennis Kozlowski.

``The breakup is going to happen,'' said David Katz, chief investment officer of New York-based Matrix Asset Advisors Inc., which owned about 1.59 million Tyco shares at the end of March. ``The company has basically moved along and is clearing each milestone.''

Tyco, the world's biggest maker of electronic connectors and security systems, entered into the settlement to resolve securities-fraud suits alleging the company overstated its income by $5.8 billion during the tenure of the now-jailed Kozlowski, according to a filing with the U.S. Securities and Exchange Commission. The settlement still requires court approval.

Tyco shares rose as much as 51 cents, or 1.6 percent, in New York Stock Exchange composite trading after the settlement was announced. They rose 19 cents to $32.38 at 4:10 p.m. The shares have risen 17 percent over the last 12 months.

`Important Step'

``With this settlement we are taking an important step to resolve our most significant remaining legacy legal matter,'' Tyco Chief Executive Officer Ed Breen said in a statement. ``Our balance sheet and cash flow remain strong and will allow us to readily absorb these costs while removing much of the uncertainty around legacy legal matters.''

Investors and analysts, including Standard & Poor's in 2004, predicted the company might have to pay as much as $4 billion to resolve the case.

``While the charge is higher than many investors likely expected, the settlement lifts a major overhang dating back to '03,'' wrote Credit Suisse analyst Nicole Parent in a report issued today.

Parent, who has a ``neutral'' rating on Tyco shares, had forecast a settlement of $1 billion to $1.5 billion.

`An Unknown'

``We'd note, however, that the liability has been an unknown for several years and it is a positive to see resolution prior to the breakup,'' Parent added.

Kozlowski and former Chief Financial Officer Mark Swartz are serving as long as 25 years in New York State prison for stealing more than $150 million in unauthorized bonuses and defrauding Tyco shareholders of millions more.

Investors alleged in their suits that the two also orchestrated a scheme to manipulate the company's earnings and defraud shareholders. Kozlowski was forced to step down in 2002. Tyco agreed in April 2006 to pay $50 million to settle SEC claims over flawed accounting.

Breen restated results and tightened accounting rules after Kozlowski's ouster. The SEC alleged that Tyco inflated operating income by $567 million through its ADT security unit. It also claimed the company inflated revenue by $500 million through improper acquisitions accounting during Kozlowski's tenure.

Kozlowski Claims

As part of today's settlement, shareholders are handing over to Tyco their claims against Kozlowski and Swartz in exchange for 50 percent of whatever the company recovers from the former executives.

The shareholders sued after the company lost more than $100 billion in market value in the year before Breen was hired in July 2002. Breen's appointment was announced the day the stock hit an all-time low of $8.25 a share.

Breen told investors May 8 that Tyco officials are still seeking to begin the company's breakup by June 30. The company is waiting for the SEC to approve the spinoffs.

Tyco officials aren't sure whether the settlement will mean quicker approval of the company's division by the SEC, Paul Fitzhenry, a company spokesman, said in an interview. ``That's an entirely separate issue,'' he said.

Tyco investors are confident that the company will proceed with the spinoff of its health-care and electronics divisions into separate companies. Tyco's remaining security and valve units will form a third company.

Cash Flow, Sales

For the six months ended March 30, Tyco had free cash flow of about $1.2 billion, sales of $21.2 billion and profit from continuing operations of $1.63 billion.

As of March 30, Tyco had assets of $64.5 billion, according to a May 8 press release describing second-quarter results. Its total liabilities, including long-term debt, were $27.6 billion.

The investor lawsuits were consolidated before U.S. District Judge Paul Barbadoro in Concord, New Hampshire. He gave the cases class-action status in June 2006 so shareholders could combine their claims.

In addition to the cash settlement, Tyco agreed to give investors its right to sue the company's former auditor, PricewaterhouseCoopers, for failing to uncover the fraud, according to a statement issued by Jay Eisenhofer and Richard Schiffrin, the shareholders' lead lawyers.

``It would not be appropriate for us to comment on a settlement we're not a party to,'' said Pricewaterhouse spokesman David Nestor.

Plaintiffs

Institutional investors, including the Plumbers and Pipefitters National Pension Fund, the Louisiana State Employees' Retirement System and Voyageur Asset Management, were among the Tyco shareholders that settled their claims under today's accord, according to court papers.

``This is a fantastic resolution and closes a chapter on one of the largest and most appalling examples of corporate fraud in U.S. history,'' Eisenhofer said in the statement.

The settlement doesn't resolve all litigation over the accounting fraud allegations at Tyco, Eisenhofer said. Some investors opted out of the New Hampshire class action, while others are suing over violations of federal laws governing pension and retirement funds.

Enron Corp. investors' $7.1 billion in settlements with the energy company's former lenders top the list of the largest securities-fraud settlements, according to Bloomberg data. Shareholders sought to recoup more than $40 billion in stock losses from the company's 2001 collapse amid allegations of accounting fraud.

WorldCom Inc. shareholders were able to recover $6.1 billion through settlements with the company's bankers after suing over a fraud that led to the largest bankruptcy in U.S. history.

Cendant Corp. and its auditors paid more than $3.2 billion to resolve investor lawsuits over an accounting fraud at a predecessor company, CUC International Inc. Cendant paid $2.85 billion of the total.

Unlike Enron and WorldCom, Tyco managed to weather its crisis without seeking bankruptcy protection.

The case is In Re: Tyco Securities Litigation, CV-02-01335, U.S. District Court, District of New Hampshire (Concord).

To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net.

Last Updated: May 15, 2007 16:56 EDT