The Anti-Kozlowski Treatment
Behind the dismantling of Tyco International Ltd. (TYC ) is the tale of two very different chief executives. The story of Tyco's flamboyant CEO, L. Dennis Kozlowski, 55, who resigned among allegations of tax evasion is well known. Lesser known is the tale of inveterate survivor Albert R. Gamper Jr., CEO of CIT Group Inc., Tyco's finance unit. Fifteen months ago, he accepted a buyout bid from Tyco and promised to stay on for three years. Now, at age 60, he's once again facing an uncertain course for a company he has already led through three owners, one initial public offering, and 20 years of change.
With the sale to Tyco in 2001, Gamper seemed to have done a career-capping deal. Tyco purchased CIT for $9.5 billion in cash and stock, a 50% premium. The deal was supposed to bring customers to CIT from Tyco's industrial holdings, providing a flow of new business for the finance company. Now, Gamper must sit tight as Tyco tries to sell or spin off the company in the toughest market in years, while bad news from Tyco rains down around him.
The clouds lifted a bit for Gamper on June 12, when the Securities & Exchange Commission gave Tyco the green light for a CIT IPO valued at $5 billion to $5.8 billion. Tyco had originally filed for an IPO of CIT on Apr. 25 that valued the company at $7.15 billion. But the IPO was held up after the SEC raised questions about CIT's goodwill accounting. The SEC only approved the IPO after Tyco agreed to slice the goodwill or premium attributed to CIT on its books by $4.5 billion.
The SEC decision will also brighten CIT 's credit picture. When the IPO looked uncertain, Standard & Poor's and Fitch had lowered CIT's long-term credit ratings, citing liquidity and corporate-governance concerns at Tyco. Some institutional investors still think the company could raise as little as $4 billion in the IPO. Even if Tyco manages to sell CIT for $5 billion, the parent company will have to book a big loss on the sale.
For Gamper, whom one former colleague calls "the rock you build the church on," it has been a difficult ride. Competitors say that they're starting to see CIT résumés--and customers. The company lost its access to the commercial paper market earlier this year. Total managed assets--loans on CIT's books plus securitized loans from which it still earns fees--slipped $1 billion in the three months ended March 31. Once independent, CIT "may prove to be more of a turnaround than anticipated," says Prudential Securities analyst Nicholas P. Heymann. Gamper, through a spokeswoman, refused to be interviewed for this story, because the company is in a quiet period before a securities offering.
Longtime CIT watchers say that Tyco's accounting woes and Kozlowski's indictment for evading sales taxes on his art purchases are unfairly tainting CIT and Gamper's record. "They [CIT execs] are really very disciplined," says Richard Schmidt, managing director at S&P. Adds Mark Girolamo, a Barclays Capital Inc. analyst: "The CIT franchise is doing business, and management has kept the proper focus." The quality of the company's loan portfolio is still comparable to its peers', say rating agency analysts.
Those who know Gamper well also say that he is the anti-Kozlowski. The two men have a few things in common: Both are from modest backgrounds and attended non-Ivy League colleges in New Jersey. But the similarities end there. Tyco's former CEO landed in hot water for his handling of a string of acquisitions, both personal and corporate. As his conglomerate grew through aggressive purchases, so did his collection of toys--helicopters, one of the world's finest yachts, and a string of homes. His wealth took him into Hollywood circles: Kozlowski was honored at a Christopher Reeve Paralysis Foundation benefit at the Waldorf-Astoria in November, where he posed for photos with actors Kevin Bacon and Kyra Sedgwick.
Gamper, on the other hand, is so straitlaced that longtime business associates joke about it. "You look up `boring' in the dictionary and there's a picture of Al," quips one New York-based banker who has known Gamper for decades. Kinder associates call him "grounded" and "honest." The Brooklyn native has lived in the same suburban New Jersey home for years. His causes are hometown ones--he's vice-chairman of the Rutgers University Board of Trustees. The Executive Women of New Jersey recently named him Man of the Year at a dinner at the AT&T Learning Center in Basking Ridge, N.J.
Earlier, Gamper was a rising star at Manufacturers Hanover Corp. He was appointed to the strategic planning group in his early forties. He was also viewed as one of five possible successors to then-CEO John F. McGillicuddy. It was Gamper who decided Manny Hanny should buy CIT for $1.5 billion from RCA. The company, founded in 1908, introduced the notion of auto finance in 1915 with loans on Studebakers.
But by the mid-1980s, CIT had become a sluggish, top-heavy institution. In 1987, CIT's earnings failed to meet expectations, setting off a ratings downgrade scare for the bank. Gamper got the task of turning it around. "It was a classic case of `You bought it, now you go make it work,"' says a bank alum who worked closely with Gamper at the time. Gamper went at it with a vengeance. "We're going to go through those extra layers [of management] like a hot knife through butter," he said in a 1987 interview with American Banker. The next year, CIT began a 12-year run of earnings growth.
That didn't stop the company from changing hands. When Manufacturers Hanover needed to raise cash quickly in 1989, it sold 60% of CIT to Japan's Dai-Ichi Kangyo Bank Ltd. in a deal that valued the finance company at $2.1 billion. In 1995, Dai-Ichi Kangyo picked up an additional 20% from Chemical Bank, which bought Manufacturers Hanover. In 1997, CIT was spun off in an IPO that sold 20% of the shares. Its Japanese parent later sold the rest of the shares.
Despite CIT's earnings record, Gamper still struggled to interest investors in a slow-growing company that lent to businesses such as trucking and forest products in the tech-crazed '90s. Analysts criticized CIT for not growing through acquisitions such as rival GE Capital Corp. In 1999, Gamper succumbed to the pressure, purchasing Toronto-based tech financier Newcourt Credit Group Inc., in a move that doubled CIT's assets, and proved disastrous. Just before the deal closed, Newcourt surprised the markets with a $1 billion writedown. CIT's stock fell 50% to just $13 a share and never filly recovered. That must have made a deal like Tyco all the more attractive, especially since Kozlowski offered Gamper a 50% premium.
Though skeptical at first, Gamper ultimately decided to embrace Tyco. That turned out to be his biggest lapse of judgment. But now, with the go-ahead for an IPO, the ultimate survivor has another chance to show that he can once again heal his battered company--this time on his own.
By Heather Timmons in New York, with William Symonds in Boston