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Wholesale/transport services

Tyco to Unload Telecom Assets

The conglomerate Tyco International Ltd. (NYSE: TYC; London: TYI), famous mostly for the excesses of its former CEO and chairman, Dennis Kozlowski, said Tuesday it is selling its Tyco Global Network (TGN), possibly the largest undersea fiber optic telecom network in the world. As part of a major restructuring, the company says it also plans to cut 7,200 jobs and that it will close more than 219 sales, manufacturing plants, and other sites, while exiting more than 50 businesses. TGN, once the crown jewel of Tyco's telecom business, connects three continents with fiber capacity and spans about 60,000 kilometers. But in a prepared statement on Tuesday, Tyco chief Ed Breen reduced the network to stepchild status. "We believe consolidation is needed in this market," he said. "Since we are not prepared to invest further in this industry, we intend to exit the business." Tyco's underused undersea network seems like an obvious business to get rid of, given that there's a glut of bandwidth, and wholesale prices are plummeting. However, a confluence of factors shows that as soon as 2005, bandwidth pricing will stabilize, and carriers will begin increasing capital spending budgets as their revenues start to come back (see Bandwidth Price Revolution, the latest issue of Light Reading Insider, Light Reading's paid subscription research service).

The paltry price netted by TGN's assets probably won't be as great as the revenues such assets could realize in a few years, when more bandwidth-hogging applications are introduced. Tyco spent some $3.4 billion on network construction for the TGN between 2000 and 2002, according to Tyco's annual reports. And the company says the TGN had a pre-tax operating loss of $117 million last year, while the combination of all the other businesses it is exiting had an operating profit of about $55 million. But while Tyco expects to generate "at least $400 million" in proceeds from selling its other businesses, it's not saying what it is asking for TGN. And it didn't return calls for this article. Other recently disposed bandwidth assets give some idea of what TGN might be worth. Global Crossing Holdings Ltd., pending government approval, will sell its network for about 6.25 percent of what it spent to build it. Genuity Inc. (Nasdaq: GENU), however, only got about 2 percent of its investment back.
Table 1: Getting Rid of the Glut -- Recent Asset Transactions
Date Acquirer Seller Amount of Transaction Est. Cost of Building Asset
June 2003 CII Communications LLC (controlled by Corvis Corp.) Cincinnati Bell $91M $2.1B
Dec. 2001 Cable & Wireless PLC Exodus $850M $2.3B
Oct. 2003 Reliance Infocomm Ltd. FLAG $207M $1.2B to $1.6B
Feb. 2003 Level 3 Communications Inc. Genuity $60M $3.2B
Source: Light Reading Insider's October 2003 report, "Bandwidth Price Revolution"


Given that range, TGN could fetch as little as $68 million or as much as $213 million. "The sale of the TGN will end a sad chapter that we can only term 'profitability meets the implicit capacity expansion of dense wave division multiplexing... and loses,' " writes Legg Mason analyst Barry Bannister, in a note to clients on Wednesday. Tyco says the whole restructuring will cause it to take a $400 million charge against earnings throughout the next fiscal year, $280 million of that in cash. Beginning in 2005, however, the savings from the restructuring will be around $230 million a year, the company says. Overall, Tyco's lost $297.1 million, or 15 cents a share, on revenues of $9.5 billion for its fiscal fourth quarter, which ended September 30. That compares with a loss of $1.44 billion, or 72 cents a share, on revenues of $9.4 billion during the year-ago quarter. The businesses that Tyco is ditching had combined annual revenues of $2.1 billion, or six percent of the firm's total sales, in fiscal year 2003. The company wrote down the $668 million value of TGN to zero, which was more than half the $1.2 billion in write-downs it had for the quarter. Meanwhile, as it reworks its businesses and flees from telecom, Tyco continues to live in a publicity nightmare, as its former CEO, Kozlowski, and CFO, Mark Swartz, stand trial for, among other things, pillaging the company's coffers and hiding millions in secret payments from shareholders. At the height of his power, Kozlowski stuck Tyco shareholders with a $2.1 million bill for a party he threw celebrating his wife’s 40th birthday in Sardinia. At the party, guests sipped vodka that flowed from an anatomically correct ice sculpture carved of Michelangelo’s "David," according to reports of the party and a court video tape.

— Phil Harvey, Senior Editor, Light Reading

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gea 12/4/2012 | 11:17:02 PM
re: Tyco to Unload Telecom Assets Hey...

Between the readers and writers of Lightreading, I'd bet we could all chip in and buy Tycom for a song! Who's in with me? I got at least $100 I could fork over for the deal...
BobbyMax 12/4/2012 | 11:17:01 PM
re: Tyco to Unload Telecom Assets Considering the present status of telecom businees, it ie vey wise on part of Tyco to dispose off its telecom assets. This should have been done as sson as the story about Kozlowski came to surface. I must add here Tyco's case is not an isolated instance but it reflects the culture of our CEOs. Even today this situation continues but the US Government refuses to investigate and take actions or reform the system. So the endess cycle of corruption in the US businesses will continue to grow.

We are losinfg confidence of our customers all around the world. They would rather buy fom the Eurpean or Japanese companies rather than the US. The goverment is so much involved in Iraq that it has no time to deal with other issues that affect our lives.
ThouShaltNotJudge 12/4/2012 | 11:17:01 PM
re: Tyco to Unload Telecom Assets I have a new theory about BobbyMax: he is not the blundering dolt one might otherwise conclude. Rather, in reality, he is a brilliant scientist conducting advanced research in AI and machine learning. He has developed a intetlligent "reply engine" which randomly analyzes and responds to these message posts.

It's impressive, but he still has a few bugs to wring-out, especially with spelling and grammar (though he probably entrusted that to some incompetent grad student). Yet while not perfect, the engine's cognition is quite remarkable.
gea 12/4/2012 | 11:17:00 PM
re: Tyco to Unload Telecom Assets ThousShaltNotJudge:

That's an old theory about Booby we kicked around a while back. In fact, for a while we even thought we could detect upgrades to Booby's code.

nevertheless, even knowing Booby was just a Lucent AI gag, some people were still unimpressed...I believe AAL5 or somebody wrote a post "Everyone knows it is an idiot", referring to the "it" that is booby.
Arrow 12/4/2012 | 11:16:53 PM
re: Tyco to Unload Telecom Assets
"I have a new theory about BobbyMax: he is not the blundering dolt one might otherwise conclude. Rather, in reality, he is a brilliant scientist conducting advanced research in AI and machine learning. He has developed a intetlligent "reply engine" which randomly analyzes and responds to these message posts."

In reality, BobbyMax is really the "MATRIX" and will be featured in Matrix 4 in a couple of weeks... He is really dangerous and should be distroyed at any cost, we have to re-route all the transivers using advanced OADM and PON to burn BobbyMax before it's too late!
photonicGuru 12/4/2012 | 11:16:51 PM
re: Tyco to Unload Telecom Assets With all these submarine networks selling cheap, I just wondering where is Mr. Neil Tagare?? It is best time for him to build his dream that he was trying to achieve in late 90s in midst of all corporate and political wrangling.

OXYGEN will easily be created now by acquiring submarine networks in piece meal with minimal cost ... approx. within 25% of the cost of OXYGEN project in late 90s..


Cheers,
DCITDave 12/4/2012 | 11:16:46 PM
re: Tyco to Unload Telecom Assets Any guesses as to how much Tyco will get for its underseas network?

I think I'm going to start an office pool.

ph

dodo 12/4/2012 | 11:16:45 PM
re: Tyco to Unload Telecom Assets Well they poured in $3.4B.

I will bet that it is going to be $80M max.:-)

Who says higher?
erbiumfiber 12/4/2012 | 11:16:39 PM
re: Tyco to Unload Telecom Assets I say AT&T buys it (wasn't it the old underseas systems to begin with?) and pays between 500 million and 700 million. If it's not the old Underseas systems (or whatever it was called) then I'll move my estimate down sharply and not say AT&T as the buyer. The most amusing situation would be if MCI bought it for pennies on the dollar or, better yet, traded MCI common stock for it...one sleazy corporation dealing with another...

But, hey, if there is a pool, there's gotta be a prize, a T-shirt, something? Pool for both the acquirer and the amount paid...
voyeur 12/4/2012 | 11:16:37 PM
re: Tyco to Unload Telecom Assets I say Corvis buys it for $50 mil. then starts selling some Dorsal equip into the network, it being sub-sea and all. Then the cool-aid drinkers say it's a great deal (synergy, cost savings with an LH OO network, etc.), while the cynics figure Corv is going underwater.

Actually, wouldn't be the craziest idea, though. If you're going to live and breath the vision, mind as well go whole hog. Why stop with BRW, which only North America. Go global.

Be the vision, be one with the light.

Hehe.
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