There's nothing quite as exhilarating as joining a company in the middle of a crisis.
In March 2003, Terry Sutter left a good job managing the specialty chemicals division of Cytec Industries Inc. for a new opportunity. It was one like few others in the plastics industry. He signed on with a business that by Sutter's admission was in chaos. Although it was a $36 billion conglomerate, Tyco International Ltd. was not that well-integrated and had enormous cash-flow issues.
A year earlier, Tyco unsuccessfully had tried to sell the division that Sutter would lead as president: Tyco Plastics & Adhesives.
Trouble at the top
Moreover, two of Tyco's recent top officials - its chief executive officer and chief financial officer - were under indictment, accused of looting the company of about $600 million in expenses that included a lavish party on the island of Sardinia and a now-infamous, $10,000 shower curtain for a Tyco-funded apartment.
Instead of running like the wind when the job offer came, Sutter embraced it. He said he was inspired after meeting with new Tyco CEO Ed Breen.
``You could look at the absolute turmoil going on,'' Sutter said in a recent interview. ``[The decision] came down to the fact that this was a great company with good products, but some leadership issues.''
Tyco Plastics & Adhesives is a huge operation with $1.89 billion in sales for fiscal 2003, ended Sept. 30. The plastic film and sheet holdings alone top out at more than $1 billion annually, placing Tyco among the industry giants in flexible packaging. The firm is a power in polyethylene products and buys about 1.5 billion pounds of PE and other resins annually.
The unit is going through changes at many of its facilities in an intense effort to whittle costs and excess capacity. While representing only about 5 percent of Tyco sales, the unit has been under a microscope since Sutter arrived.
``[Plastics & Adhesives] is a leader in a wide range of products,'' Breen said during an annual shareholders meeting in March. ``We've focused on restructuring the business with a more streamlined cost structure.''
Hey, batter, batter
From a company that looked ready to fall apart two years ago, the new Tyco now is considered a huge start-up enterprise where new ideas are welcome, Sutter said. Most of the leaders of its plastics-related divisions are of fairly recent vintage with Tyco. The heads of Minneapolis-based Tyco Plastics, the huge film division, and A&E Products Group, a dominant maker of injection molded garment hangers, have been at Tyco less than a year.
The enthusiasm of the newer executives - many coming from other successful companies - has caught on like that of a baseball team that believes it is close to winning a championship, said Dan McAtee, president of Princeton, N.J.-based A&E.
``We think in terms of building a World Series team here,'' said McAtee, who had worked for General Electric Co. for 15 years. ``A lot of us come from other World Series teams [in business]. But we've never had the chance to build one from the ground up, to take something and bring it to the next level.''
Even Tyco International's location represents a break from the past. Although Tyco's ostensible headquarters remains offshore in Pembroke, Bermuda, the company recently moved to new administrative offices in Princeton. Many of its leaders are at that location, including Sutter and McAtee, who shifted from A&E's former offices in Secaucus, N.J.
Breen, the former president of Motorola Inc. and an ex-naval officer, is known as a master of discipline and ethics. He set the course by honing Tyco's corporate governance policy, helped outline a new guide to ethical conduct for its 260,000 employees and set up training so employees recognize correct behavior.
That ethical boot camp now includes online tutoring and computer modules that ask questions about conduct. Tyco also brought in an ombudsman to help oversee real-life issues, and a head of corporate governance. Leaders are trained to deal quickly with matters of governance, Sutter said. Under Breen's directive, governance was something the company had to get right, or nothing else would matter, Sutter said.
``Those areas could float in the background with the operating aspects of the business,'' Sutter said. ``But you don't know how important it is until it's broken. When it's broken, like it was here, it becomes an evolving issue. And you really do have to fix it.''
While the firm has put much effort into resolving ethical problems, the situation could keep Tyco in a negative public light for some time. A trial of former CEO Dennis Kozlowski ended in mistrial in early April, but prosecutors plan to pursue a new jury trial.
``I think Tyco would rather a decision be reached quickly, no matter what verdict,'' said an analyst who did not want his name used. ``Otherwise, their name is still being dragged through the mud.''
The problems at Tyco Plastics & Adhesives could be considered a microcosm of what was ailing Tyco. In the 1990s, the group - which became a separate operating unit in 2003 - made one acquisition after another to boost top-line sales. Some of those acquisitions were not even mentioned in Tyco's quarterly and annual reports. That lack of disclosure later became a sore spot with the Securities and Exchange Commission.
Tyco became a leader in commodity film and sheet products for a host of retail, institutional and food-service markets. It makes everything from retail trash bags - Tyco is the largest U.S. maker - to stretch film, agricultural film and institutional can liners.
But the flurry of acquisitions also led to a decentralized approach in which some plants did not share production or purchasing expertise. In July, the company brought in Brian Strauss, a former executive with Allied Signal/Honeywell Inc., to fold Tyco Plastics into one globally run business unit instead of disparate parts.
``My challenge was joining an organization that had historically made its way in the world based on acquisitions,'' Strauss said. ``We're now going for a model that is more focused on driving operations, instead of making an acquisition here and there.''
Since November, that has meant closing eight Tyco Plastics plants and cutting about 700 of 4,600 jobs. The company went through that painful exercise to reduce excess capacity and make it more competitive, Strauss said.
For now, the company has no immediate plans to close more plants, said Tyco Plastics & Adhesives spokesman Jay Pomeroy.
Extrusion equipment from the closed sites has shifted to other plants, and the company has instituted Six Sigma techniques to cut waste. ``Call it a redeployment,'' Strauss said. ``We've actually added to head count at seven facilities.''
The business unit also is putting a sharper pen to its purchasing operation, Strauss said. For resin purchasing, Tyco Plastics and A&E are having daily discussions with suppliers on improving prices and terms, he said.
The A&E operations similarly are focused on organic growth. A&E has been acquisitive, growing to become the largest garment-hanger manufacturer worldwide. The company now sells about 4 billion hangers a year, McAtee said.
During the past three years, A&E has shifted from licensing its products to overseeing hanger production at customer facilities worldwide, McAtee said. It recently opened an office in Hong Kong, in a region where a majority of clothing makers are located.
At the same time, the company has shut down three U.S. locations, McAtee said. It also is looking at cutting cost from the system, even though the hanger business has a relatively high profit margin. A&E also includes an operation that makes plastic plates, glasses and tumblers.
``We're looking at turning our group into more of an operating business,'' McAtee said. ``In Europe, in Asia and in America, we're all A&E. But we've been a loosely held conglomerate with a lot of acquisitions.''
Those acquisitions, across the board at Tyco divisions, led to other stresses in the fault line. A serious cash-flow problem, coupled with a lack of liquidity, hampered Sutter and other managers upon arrival.
Debt load kept climbing across all of Tyco's divisions. At the low point, Tyco's $36 billion in annual sales only generated about $800 million in cash, Sutter said. The company was in danger of defaulting on its credit, until one of the largest bond offerings for a U.S. company helped bail out Tyco last year.
In the past fiscal year, the company generated more than $200 billion in free cash. Its credit standing inched back to investment grade. And its stock price, down to around $8 a share in the last days of Kozlowski's term, has moved back to about $29 a share.
Still, Tyco Plastics & Adhesives has work to do. Second-quarter financial figures, released May 4, show a unit in transition. Sales for the first six months of fiscal 2004 were down 1 percent to $929.8 million, and profit was down 2.2 percent. The company blamed a $24 million charge for restructuring, lower volumes and higher resin costs.
Analysts are optimistic.
``They're trying to get as much as possible out of each square foot,'' said Joel Levington, corporate finance director for New York-based credit agency Standard & Poor's.
``Tyco has about $15 billion a year in purchasing to spend on basic commodities and the components that they buy. Clearly, they can save a tremendous amount if they use their clout in this area.''
Still, the glory days, when the stock price sat at a robust $45 a share and outsiders compared Tyco with GE, are not yet being relived. The company has turned the corner but has to continue its work, Sutter said. But he has faith that the company is strong.
``I will tell you that we have a committed workforce,'' Sutter said. ``In meetings, when they heard of what was going on [with Kozlowski], they were offended at what had happened. We heard what was said, made a transition and embraced it.''
Buy, sell or hold?
While Tyco is focused today on fixing operational issues with its plants, there's nothing to say that it will not make more acquisitions in the future, Sutter said.
S&P's Levington sees that potential.
``If Tyco achieves all the improvements indicated, it will have the financial capacity and wherewithal to think about external growth initiatives.''
Tyco Plastics does 90 percent of its work in North America and eventually would like to become more global, Strauss said. With Asian companies bringing plastic bags to North America, there is no reason why Tyco cannot go the other direction, he said.
``We look at the world as our marketplace,'' Strauss said.
But the company still must make some key decisions beyond acquisitions, said Jeff Graff, an analyst with Cleveland-based Victory Capital Management Inc., an investment unit of KeyCorp. One of those decisions is figuring out what to divest.
Tyco has talked about raising upward of $1.4 billion through sales of about 50 noncore businesses.
The company had attempted to sell Tyco Plastics & Adhesives in January 2002, hoping to raise as much as $4 billion. But those plans faltered when former Tyco leaders refused to open their books to potential buyers.
Graff predicts Tyco again might look to see what it should sell.
``Step one was really stopping the bleeding from a liquidity standpoint and the publicity and issues surrounding it,'' Graff said. ``They've done a pretty good job doing that. The next step is to see what it can sell out there, probably over the next 12 months.''
Sutter said Tyco sees its plastics and adhesives operations as a core business - yet, who knows what the future could hold.
``Anybody could walk in with an offer at a price that was incredible and a valuation that make a lot of sense,'' he said. ``But at this point, we're more committed to moving forward with our plants.''