Tyco International Ltd. (NYSE: TYC) hosts its analyst meetings Tuesday to showcase its new spin-off companies. Late last week we saw trading begin in the two spin-offs on a when issued basis:
The Tyco Healthcare unit is named Covidien Ltd. and is trading under a when-issued ticker (NYSE: COV) or on most symbols as "COV-WI"; Covidien traded down 0.5% to $46.25 yesterday.
The Tyco Electronics"unit is appropriately named Tyco Electronics and trades as (NYSE: TEL) or "TEL-WI"; Tyco Electronics closed down 4.25% yesterday at $37.15.
The remaining company for all of the security and fire company is remaining Tyco International Ltd. and keeping the "(NYSE: TYC)" ticker; shares traded down 0.67% to $34.09 yesterday.
I have noted that the break-up value could could fetch up to $36.00 or $37.00, but the stock is acting like it is in a range of $32.00 to $35.00 and as though there is a phantom premium in the stock based solely on the actual spin-offs as an event rather than as the spin-offs true values.
Last week, Goldman Sachs had reiterated a Buy rating on the stock with a much more positive outlook. Goldman noted that Tyco could even have a premium to its $35.00 target, which was even noted as "conservative." My $36.00 to $37.00 note was sent on June 12, when the market was trading off, so a better stock market will be a boost for it.
If the market was not in a back-and-forth mode and if this wasn't taking place into the 4th of July, it might be a tad different. But only a tad. A group of dissident bondholders late last week also noted they are trying to get Tyco's deal delayed, but the company said it remains on track after two delays already. The company is also taking a $370 million after-tax charge this quarter related to sale of a power systems unit out of the electronics unit
Tyco trades too much in-line with General Electric Co. (NYSE: GE) for the relative value to be incredibly higher than the market value of today, and shares have risen more than 36% from the lows over the last year before the spin-off was set in stone.
Jon Ogg is a partner at 24/7 Wall St.; he does not own securities in the companies he covers.
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