Tyco International (NYSE:TYC) gained necessary government approvals yesterday for the spin-off of its healthcare and electronics segments to shareholders. Shares in the manufacturing and service company rose to set a new 52-week high on the news as shareholders look forward to the divesture. Shareholders on record June 18th will be eligble to receive shares in the new companies that are expected to begin trading as early as July 2nd under the symbols COV and TEL.
Many shareholders have been looking forward this spin-off as the two business segments have long been considered undervalued. The spin-off will unlock this value by freeing the segments of an overburdening corporate structure. Many analysts estimate Tyco stock as trading at less than half of its eventual value that will be realized once the three businesses are operated independently. Others peg the value just shy of $40 per share. Regardless, most analysts agree that this spin-off is a long overdue effort to unlock value in Tyco's diversified businesses.
So, what does this mean for investors today? Well, many analysts peg the intrinsic value of Tyco post-breakup at a collective $40 per share. This represents a premium of more than 15% over today's close. We also know that spin-offs in general tend to outperform the overall market due to factors related to the structure of the deals. Often times, existing shareholders that receive shares in the new company will immediately sell them since they never intended on holding them. This causes unjustified selling pressure on the new spin-off companies, which can translate to opportunity for enterprising investors. Combined, these factors make TYC a stock
worth watching!
Related CompaniesJohnson & Johnson (JNJ)Global Crossings (GLBC)Axcess International (AXSI)