The Tyco Aftermath (TYC, TEL, COV)

August 28, 2007 by Douglas A. McIntyre

Tyco International Ltd. (NYSE:TYC) is one of those strange spin-off and restructuring stocks that has not done well since the company broke itself up.  The Tyco Electronics (NYSE:TEL) and Covidien (NYSE:COV) stocks have also fallen more than the overall market since the spin-off.  But not all bad stories have sad endings.  We will be sending out a tie to one of the new companies next week to subscribers of our Special Situation Investing Newsletter.

Before the Tyco (NYSE:TYC) break-up we had many inquiries for higher and higher price targets on Tyco, but the fundamental problem was that no matter how we crunched those numbers the math just didn’t work for Tyco’s stock price at the time.  We even called it a ‘phantom premium running Tyco shares’ ahead of the event because investors were too much in love with the private equity, mergers, and break-ups at the time.  That stock had a phenomenal run from last summer to this summer as the deal was quite well telegraphed, but nonetheless there existed a phantom premium.