While Tyco International Ltd.'s extensive plastics operations no longer are for sale, several analysts said the company might move to sell parts of the business later this year.
``I think they're going to look at their plastics business and see products or plants that don't fit into their core strategy now,'' said Charles Johnson, managing director of Matrix Capital Markets Group in Richmond, Va. ``In two years, Tyco's plastics business probably will not look like it does today.''
Officials at publicly held, Pembroke, Bermuda-based Tyco said April 25 that they would abandon a plan to sell the firm's plastics and adhesives business. That business includes a commodity flexible film operation with annual sales of close to $2 billion, plus A&E Products Group LP, a dominant maker of injection molded hangers.
Tyco admitted the plastics units would not fetch the $3 billion to $4 billion it expected in a sale. Several major investment banking groups, some working in tandem, had expressed interest but ultimately were wary of both the price tag and the business's financial strength, according to several sources familiar with the negotiations.
Those groups had toured Tyco facilities in late March and were waiting for detailed, audited financial information before Tyco made its surprising about-face last week, sources said.
Tyco first announced plans to sell the operation Jan. 22, along with a plan to break up the rest of the firm into four independent, publicly traded entities. The plan was designed to boost shareholder value by as much as 60 percent.
Instead it had the opposite effect. Tyco shares traded as high as $52.55 on Jan. 22, but on the morning of April 26 had dropped to $19.44.
``They're taking their medicine now,'' said equity analyst Walter Liptak of McDonald Investments in Chicago. ``They need to put together a long-term strategy. I don't think we'll see much activity from Tyco for awhile.''
Plastics processors had expressed little interest in buying Tyco's plastics business, especially as one piece. But both strategic and financial buyers could clamor for pieces of Tyco, especially with bank funds loosening, Johnson said.
Tyco now can focus on growing the film business and improving operating efficiency at its plants in the shorter term, said Ken Brooks, a vice president of Ernst & Young who follows the packaging industry.
But Tyco's plans could change in the future, Brooks said.
``There's nothing that says they can't go back out publicly or privately 12-18 months from now with something more attractive than what they have now,'' Brooks said. ``It's clear they only will sell it if they got their price for it. They had nothing to lose by testing the waters.''
Other analysts said the company again could move to an acquisition mind-set for its film business, a mode Tyco had adopted until four months ago.
But a sale of the entire business seems less likely.
Two other sources familiar with Tyco said equity groups were nervous about buying the plastics business because of concerns about Tyco's accounting practices.
``In the end, no one was willing to pay what they wanted,'' the source said. ``When they got into the accounting details, something seemed a little fishy.''
Tyco officials said neither price nor accounting led Tyco to keep the plastics business: Tyco simply is scrapping its plan to split up its various divisions.
``The only reason we were selling the [plastics] business is that it did not fit into any of our stand-alone entities created in the breakup scenario,'' said L. Dennis Kozlowski, Tyco chairman and chief executive officer. ``It's a solid business that [will generate] free cash flow to fund share purchases and earnings growth.''
Kozlowski called Tyco's breakup plan a mistake, in hindsight. ``We want to take it off the table and put it behind us,'' he said during an April 25 conference call with investors.
Tyco will continue with its plan for an initial public offering for financial-services company CIT Group Inc., Kozlowski said.
Tyco also plans to close 24 plants and lay off 7,100 workers as part of a restructuring. Those moves mainly will involve its electronics and telecommunications businesses, not plastics, Kozlowski said.
Yet the plastics business has been hurt by uncertainty surrounding a potential sale, he said.
``Because they thought it was being bought by a leveraged buyout group, customers started looking for alternatives,'' Kozlowski said. ``They did not know if there would be a disruption in development or what kind of flexibility we had going forward.
``It's a mistake we can fully recover from.''