Tyco International Ltd. shocked the packaging world Jan. 22 when it said it would sell its sprawling plastics subsidiary. But insiders say Tyco should not be surprised it if cannot readily find a buyer for its commodity film and sheet businesses.
Executives with five competitors expressed little to no interest in going after Tyco's plants, at least as one lump purchase, or in paying the price that Tyco is asking. The facilities form the core of Tyco's plastics offerings.
``We haven't talked that much about it internally,'' said Richard Durham, chairman and chief executive officer of flexible packaging maker Pliant Corp. of Salt Lake City. ``Tyco has done a lot of cost-cutting, and I don't know if a lot of juice is left in that orange. I have to ask what synergies or great upside there would be for a financial buyer coming in.''
Still, a sale could change the balance of power in the plastics film industry. Tyco is in the top five of North American producers of flexible packaging. A sale could include 32 plants and more than 4,000 employees.
The multinational giant also plans to break up its remaining businesses into four independent companies.
Tyco could end up taking the plastics business off the market, said Ken Brooks, vice president of Ernst & Young Corp. Finance Inc. in Montreal. ``They could acknowledge they are not getting the price they want and keep the business,'' he said. ``It's happened time and time again with other companies.''
Other sources familiar with Tyco said the company's first priority is to find a plastics-business buyer by the end of June.
In an analyst briefing, publicly held Tyco said it expects to raise $3 billion to $4 billion by selling Minneapolis-based subsidiary Tyco Plastics.
Several Tyco plastics businesses are included in the plan:
* Tyco's polyethylene-based custom coextruded and shrink films, institutional can liners, agricultural films, stretch films, sheeting and retail trash bags. Its film and sheet operations reached $1.5 billion to $1.8 billion in sales during 2001, according to several industry experts.
* Secaucus, N.J.-based A&E Products Group LP, considered the world's dominant injection molder of garment hangers. A&E recorded about $260 million in sales in 2000, according to Plastics News estimates.
* Ludlow Coated Products of Homer, La., a maker of protective packaging from plastics and other specialty materials. Tyco's adhesive operations also could be on the block.
Tyco is considered by far the world's largest purchaser of PE, using as much as 1.8 billion pounds a year, several sources said.
But many of its PE-derived products are not specialized and provide low profit margins that could turn off potential buyers, said consultant Tim Burns of Willamsville, N.Y.-based Cranial Capital Inc.
``There's nothing fancy about it,'' he said. ``They're not a high-tech barrier player or industrial oriented. A plain-Jane flexible packaging company is probably relatively low in interest for competitors.''
Tyco's plastics-related business accounted for a small portion of the company's $36.3 billion in fiscal 2001 sales.
``Plastics is really three or four businesses for us,'' said Tyco International Chairman and Chief Executive Officer L. Dennis Kozlowski. ``It has attracted a lot of attention, and a considerable amount of [prospective] buyers have come forward. It was hard to take [the plastics business] public, and shareholders and bondholders are best served by getting cash for it,'' Kozlowski said at a Jan. 22 analyst briefing.
The Pembroke, Bermuda, company, which has offices in Exeter, N.H., plans to break its remaining operations into four parts. Those yet-unnamed companies, all to be taken through initial public offerings, will be divided into security and electronics, health care, fire protection and flow control, and financial services.
The new health-care company will include medical molder C.R. Bard Inc. of Murray Hill, N.J., Kozlowski said. Tyco's fire protection and flow control company also includes production of plastic pipe for sprinkler systems.
A heavy debt load and an underperforming stock fueled Tyco's breakup strategy, which the company expects to complete by the end of the year, according to Kozlowski. The company hopes to shrink more than $11 billion in debt.
But the asking price for the plastics business, about 1.5 times the unit's sales, might be too much. ``I'm willing to bet some [Tyco] investors will be disappointed,'' Durham said.
The firm might need to split the plastics business into pieces to create interest, said several executives. Frank McNabb, president and chief executive officer of film producer Plassein International, said he would be interested in specialty products, including adhesives and the Ludlow line, but not in commodity films.
``I've been in the commodity business a long time, and that's just not appealing to us,'' said McNabb, based in Wilmington, Conn. ``I think it's a tossup whether they find a buyer.''
AEP Industries Inc. of South Hackensack, N.J., another large film producer, might look at a Tyco stretch film plant or its institutional trash-can-liner business, said Executive Vice President John Powers. But the entire operation would be too much to swallow, he said.
``You're not going to have too many people able to do that and take on that kind of debt load,'' Powers said ``It would be very difficult to justify it.''
Chances are, Tyco has not yet found a buyer for the operation, although it could have shopped it quietly, said consultant Huston Keith of Keymark Associates Inc. of Marietta, Ga. Many competitors said they had not been contacted by Tyco.
``When you slap a for-sale sign on, it generally means you haven't had any luck in arranging a quiet sale,'' Keith said.
An ideal scenario would have a financial sponsor cobbling together a major film and sheet player from Tyco and another company, Burns said. An example is J.P. Morgan Chase & Co., an investment firm that has a majority stake in Pliant.
``It would take costs out and keep pricing down for PE,'' Burns said. ``But few independent companies could pull this off without a financial sponsor.''
Tyco had completed numerous plastics acquisitions before the surprise announcement.
The unit boosted its operations early last year when it bought the PE packaging business of Pactiv Corp., including two plants and the assets of three others.
A Massachusetts newspaper recently said Tyco would close a small plant in Bernardston, Mass., once owned by Mohawk Plastics Inc. The plant, with 60 employees, makes Ruffies garbage bags.
When reached for comment Jan. 22 on the proposed sale, Tyco Plastics President Andrew Zuckerman referred the call to a spokeswoman, who did not return a telephone message.