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Tyco Rises on Report Schneider, Private Equity Discuss Offer

Tyco Rises
Tyco International Ltd. signage is displayed outside of the company's offices in Princeton, New Jersey. Photographer: Emile Wamsteker/Bloomberg

Tyco International Ltd. rose after the New York Post reported that France’s Schneider Electric SA may work with private-equity firms on a bid of $30 billion or more.

The shares climbed $1.28, or 2.6 percent, to $50.78 at 4:15 p.m. in New York Stock Exchange composite trading. The company pared earlier gains of 4.7 percent after Schneider reiterated its April 20 comment that it has no plans for a large transaction.

Tyco was identified as a takeover candidate after Bloomberg reported April 11 that Schneider held preliminary talks about a buyout. The Post, citing people it didn’t identify, said Schneider’s discussions with private-equity groups are at an early stage, with no decision on a possible partner.

Speculation that Schneider may team up with multiple parties to buy Tyco makes more sense compared with prior discussions it would acquire the company outright, Deane Dray, a New York-based analyst with Citigroup Inc., said in a telephone interview.

Dray said Schneider could purchase Tyco’s “jewels” -- the Security and Fire divisions -- while other companies or private-equity firms may acquire its other businesses. Dray has a “hold” rating on Tyco.

Little ‘Overlap’

While there’s very little industrial-strategic logic for a combination between Schneider and Tyco, Schneider has a history of aggressive acquisitions, Steve Winoker, an analyst with Sanford C. Bernstein & Co., said in a telephone interview.

“The only overlap that exists is really a small digital/video business that Schneider has,” said Winoker, who has a “market-perform” rating on Tyco. “So this is a completely adjacent move, and synergies have got to be very limited. But if the company wants to make a move over into an adjacent business, then that’s what this is.”

Schneider Chief Executive Officer Jean-Pascal Tricoire told analysts on April 20 that “there is no plan of large-size acquisitions now and in the foreseeable future” for the Rueil-Malmaison, France-based company. Schneider said a week earlier it was “not currently” in talks with Tyco, the world’s largest maker of security and fire-protection systems.

“Our chief executive has expressed himself clearly at the time of our first quarter-earnings report,” a Schneider spokesman, Anthime Caprioli, said today. “We have no further comments to make.”

Schneider fell 1.6 percent to 112.25 euros at 5:27 p.m. local time in Paris trading.

Tyco Silent

Paul Fitzhenry, a spokesman for Schaffhausen, Switzerland-based Tyco, declined to comment. Tyco hasn’t acknowledged any discussions with Schneider.

Goldman Sachs analyst Terry Darling increased his Tyco M&A ranking to 2 from 3 in late April following Chief Executive Officer Ed Breen’s comments that the company is always open to options that boost long-term value for investors. A No. 2 ranking represents a medium probability of 15 percent to 30 percent.

Tyco’s options volume rose, as calls to buy traded at four times the four-week average, while puts to sell were six times average. The most-traded contracts were July $60 calls, which jumped 63 percent to 52 cents as of 4 p.m. in New York. Implied volatility, the key gauge of option prices, for at-the-money options expiring in 30 days, jumped 25 percent to 32.38.

Tyco’s CEO said April 28 he likes Tyco’s existing businesses, which include industrial valves as well as the fire and security divisions. He also said the company always looks “at all the other alternatives to see if something makes more sense to create long-term shareholder value.”

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