Tyco International's Acquisition and Divestment Strategies

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Tyco International's Acquisition and Divestment Strategies in Light of Competitive Success Factors
In its existence, Tyco International, a worldwide corporation, has undergone several mergers, acquisitions, and divestitures. This study looks at two significant Tyco transactions from 2016: the purchase of Johnson Controls and the sale of its security division. The study looks at the strategic justifications behind Tyco's acquisitions and divestitures, how these actions affected the company's competitive position, the factors influencing competitive success that influenced Tyco's choices, and how Tyco created synergies and a strategic fit through its acquisitions. Furthermore, the paper examines whether Tyco's divestments added value to the company and its stockholders.
Research questions
1 What were the strategic reasons for Tyco International's acquisitions and divestments?
2 How did these deals impact Tyco's competitive position in its markets?
3 What competitive success factors influenced Tyco's decision to pursue these deals?
4 What were the challenges that Tyco International faced in integrating its acquisitions and achieving synergies, and how did the company overcome these challenges?
5 Did Tyco's divestments create value for the company and its shareholders?
Presentation of the most important facts
Since its inception in 1960, Tyco International has diversified its interests to include the healthcare, fire safety, and security industries. By combining forces with Johnson Controls in 2016, Tyco became an industry powerhouse in building products and technology worldwide. Buying this company allowed Tyco to shift its attention to more promising development sectors. Tyco sold off its Korean Security Business in 2014 as part of an effort to reorganize operations and focus on faster-growing regions. The corporation decided to divest because the security business was not following the company's long-term strategy and not providing sufficient returns.
The graph below shows Tyco and Johnson Controls’ performance for 1 month
Figure 1: Tyco International to tie up with Johnson Controls
Tyco International and Johnson Controls announced a merger agreement on January 25, 2016, which resulted in an 11.6% increase in Tyco's stock and a 3.9% decrease in Johnson Controls' stock. Johnson Controls relocated its headquarters to Ireland for tax reasons after the combined firm was valued at $36 billion. Tyco International had a five-day trailing return of 12.7%, with seven "buy," eight "hold," and no "sell" recommendations. This performance is depicted in Figure 1 above.
Analysis of evidence
Tyco divestment
Tyco Fire & Security Services Korea Co. Ltd., ADT Caps Co., Ltd., Capstec Co. Ltd., and ADT Security Co. Ltd., also known as ADT Korea, were among the divested entities. Via a statewide network of 69 branches, ADT Korea offered security services to over 475,000 small- and medium-sized businesses and commercial and residential customers. The business provided access control, other tailored security systems, central monitoring services with video surveillance and dispatch, and bodyguard services (Stenbacka and Van Moer 3). With forecasted revenues of $600 million and operating profits of $125 million in fiscal 2014, ADT Korea was anticipated to contribute 20 cents per share to Tyco's financial earnings. Tyco decided to sell its lucrative ADT Korea business to raise money for accretive purchases that would increase shareholder value.
With the purchase of ADT Korea by Carlyle Group, the company gained a very successful and stable business, a desirable market position, a powerful brand, and a reliable cash flow profile. Additionally, the acquisition increased Carlyle Group's ability to reach the underserved Korean security services market, which is seeing rising awareness and demand for safety.
Tyco acquisition
Tyco International Ltd. has used an acquisition strategy to propel its expansion to high levels of excellence, owing to the highly diverse worldwide integration of its three core business divisions: security solutions, fire protection, and flow control. After purchasing Armin Plastics and the Ludlow Corporation, it started providing packaging services in the early 1960s. Following this acquisition, the corporation saw increased commerce and, as a result, significant profits due to the market's variety of commodities (Stenbacka and Van Moer 2). Hence, the company fulfilled the necessary business standards to be listed on the New York Stock Exchange in 1974.
Tyco International's entry into the stock market quickly gave it an edge over rivals in the industry by publicizing the brand to consumers who were otherwise unfamiliar with the company. It continued to grow, both in terms of products and services and through acquisitions of other companies. It has achieved international prominence, increasing its market share through product export. With this strategy, the company's resource and expertise growth rate is faster than competitors, with the ability to deliver a varied range of high-quality new things (Stenbacka and Van Moer 4). The company was able to lessen the risks and costs of generating these new products by acquiring an already established corporation with ready-to-sell items such as polythene and plastic pipes. Compared to competitors, this leads to reduced market prices for its items.
Tyco international ltd.
Consolidated balance sheets

Quarters Ended March 26, 2010

Quarters Ended March 27, 2009

Six Months Ended March 26, 2010

Six Months Ended March 27, 2009

Net revenue

$4,169,000,000

$4,150,000,000

$8,415,000,000

$8,576,000,000

Cost of sales

$2,659,000,000

$2,715,000,000

$5,340,000,000

$5,584,000,000

SG&A expenses

$1,108,000,000

$1,200,000,000

$2,248,000,000

$2,340,000,000

Goodwill and intangible asset impairments

$0

$2,705,000,000

$0

$2,705,000,000

Restructuring, asset impairment and (gain)/loss on divestitures, net

($25,000,000)

$84,000,000

($14,000,000)

$88,000,000

Operating income (loss)

$427,000,000

($2,554,000,000)

$841,000,000

($2,141,000,000)

Interest income

$7,000,000

$11,000,000

$16,000,000

$23,000,000

Interest expense

($74,000,000)

($78,000,000)

($150,000,000)

($151,000,000)

Other income, net

$3,000,000

$7,000,000

$12,000,000

$11,000,000

Income (loss) from continuing operations before income taxes

$363,000,000

($2,614,000,000)

$719,000,000

($2,258,000,000)

Income tax (expense) benefit

($51,000,000)

$60,000,000

($104,000,000)

($24,000,000)

Income (loss) from continuing operations

$312,000,000

($2,554,000,000)

$615,000,000

($2,282,000,000)

Loss from discontinued operations, net of income taxes

$0

($12,000,000)

$0

($7,000,000)

Net income (loss)

$312,000,000

($2,566,000,000)

$615,000,000

($2,289,000,000)

Noncontrolling interest in subsidiaries net income

$2,000,000

$1,000,000

$3,000,000

$1,000,000

Net income (loss) attributable to Tyco common shareholders

$310,000,000

($2,567,000,000)

$612,000,000

($2,290,000,000)

Amounts attributable to Tyco common shareholders





Income (loss) from continuing operations

$310,000,000

($2,555,000,000)

$612,000,000

($2,283,000,000)

Loss from discontinued operations

$0

($12,000,000)

$0

($7,000,000)

Net income (loss) attributable to Tyco common shareholders

$310,000,000

($2,567,000,000)

$612,000,000

($2,290,000,000)

Table 1: Extracts from quarterly statements and balance sheets (Mustapha).
Tyco International has acquired 34 firms as it has grown its business through smart mergers and acquisitions. Twelve of those purchases were made by private equity companies, illustrating Tyco International's readiness to collaborate with investment companies (Loukianova et al. 236). The company also sold 18 assets, demonstrating its dedication to portfolio optimization and a focus on its core skills. The greatest acquisition made by Tyco International to date was the $12.0B purchase of AMP in 1999. With the help of this acquisition, Tyco International broadened its product line and clientele, solidifying its position as the market leader for electrical components. The company's largest announced sale, the $4.9 billion sale of Tyco Flow Control to Pentair in 2012, allowed it to consolidate its portfolio and concentrate on its core activities.

2002
In dollars ($)

2001
In dollars ($)

2000
In dollars ($)

1999
In dollars ($)

Reported operating cash flow

5,696,000,000

6,926,000,000

5,275,000,000

3,550,000,000

Less: Capital Expenditures

(1,709,000,000)

(1,798,000,000)

(1,704,000,000)

(1,632,000,000)

Less: Construction in Progress

(1,146,000,000)

(2,248,000,000)

(111,000,000)

0

Free cash flow

2,841,000,000

2,880,000,000

3,460,000,000

1,918,000,000

Less: Acquisitions

(3,709,000,000)

(11,851,000,000)

(4,791,000,000)

(5,135,000,000)

Free cash flow after acquisitions

(868,000,000)

(8,971,000,000)

(1,331,000,000)

(3,217,000,000)

source: (Mustapha 7)
The corporation acquired businesses in 15 US states and 5 other nations, demonstrating its global reach and eagerness to enter new industries. Tyco International targeted the safety and security sector the most; 25% of its acquisitions were in this field, demonstrating its dedication to offeri...