Breen Named to Tyco Post
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Under Breen, Tyco's net income rose 23 percent last quarter, to $719.2 million, although revenues were up only 2 percent, to $9.7 billion.
updated 3/21/2004 4:16:48 PM ET 2004-03-21T21:16:48

While a New York jury deliberates grand larceny charges against former Tyco International Ltd. CEO L. Dennis Kozlowski, his successor, Ed Breen, is preparing for the conglomerate's annual meeting.

Breen, who assumed Tyco's leadership in July 2002, will present shareholders with a company already transformed but still in need of change.

The new CEO replaced all of Tyco's top executives, two of its five division presidents and the former board. He has moved Tyco's operating headquarters from the posh New York digs where Kozlowski held sway to a more modest office park in West Windsor, N.J.

Breen said he has calmed customers, employees and investors unnerved by Tyco's scandals. He is encouraging more internal policing by installing an ombudsman at Tyco and giving workers an ethics guide called "Doing the Right Thing."

"We have to become a world-class operating company," Breen said, after years as a holding company that barely oversaw its diverse businesses.

Under Breen, Tyco's net income rose 23 percent last quarter, to $719.2 million, although revenues were up only 2 percent, to $9.7 billion.

Analysts say Breen has made progress in resurrecting Tyco's reputation, finances and stock price.

"I think Ed Breen was a good broom to bring in," said Jim Kelleher, diversified industrial analyst at Argus Research Corp. "He's cleaned out the old top tier of Kozlowski-identified managers."

In an interview, Breen said he still has plenty of work to do. He must boost relatively flat revenues and reduce debt. Tyco's stock price has recovered somewhat, rising from below $8 per share from July 2002, when Breen arrived, to about $28 today. Still, that's less than half its $63 peak in 2001.

But his first job was to overhaul Tyco's corporate structure. The new board has nine independent directors, including retired DuPont CEO John Krol and former New York State comptroller and United Nations ambassador H. Carl McCall.

Another outside director is up for election at the annual meeting that will be held Thursday in North Haven, Conn.

"They've established some guidelines for preventing what happened before from happening again," said Charles Elson, director of the Weinberg Center for Corporate Governance at University of Delaware. "It's a radically different company."

Breen, formerly CEO of Motorola and of General Instrument Corp., is also consolidating 219 facilities worldwide. He's selling off about 60 low-margin, noncore businesses, including Tyco's money-losing, undersea fiber-optic network. He's increasing efficiency, negotiating lower prices for phone bills and other major overhead, and cutting 7,200 of Tyco's 260,000 jobs.

His goal is to free up $3 billion annually to pay down heavy debt and invest in new products. Tyco has already decreased its debt from $24 billion to $18.5 billion and is refinancing the rest with better terms, boosting cash flow, Breen said.

Breen's efforts have been overshadowed, at least temporarily, by embarrassing courtroom revelations about a $2 million birthday toga party, a $6,000 shower curtain and other lavish perks enjoyed by Kozlowski.

Kozlowski built the company from a little-known industrial manufacturer to a global powerhouse, with leading products in many industries and $34 billion (now $37 billion) in annual revenues. His helter-skelter acquisitions of more than 1,000 companies in a decade helped propel Tyco's stock price from about $5 to the $60 range.

After a five-month trial, Kozlowski and ex-chief financial officer Mark H. Swartz are awaiting a jury's verdict on charges they siphoned $170 million from the corporate coffers and made another $430 million by manipulating Tyco stock prices.

Breen does not expect tension at Thursday's annual meeting, where the board is expected to replace PricewaterhouseCoopers LLP, the auditors who watched over Kozlowski.

The board opposes two shareholder proposals up for a vote.

One would hold executive salaries to $1 million each year and limit other compensation; the other would return Tyco's incorporation back to the United States from Bermuda, where taxes are much lower but laws give shareholders fewer rights. Tyco instead supports changes to protect stockholder rights.

Breen has been focusing on internal issues, but says he's well aware of the company's image problems outside the boardroom.

This month, Tyco is launching an advertising campaign in major newspapers and financial publications in the United States, Europe and Asia. The ads show Tyco's top 13 executives, their signatures and a headline that reads, "We signed on because we believe Tyco has a bright future. We signed below to show you we mean it."

Because its businesses operate under individual brand names, most of the public knows nothing about Tyco but the scandal. Yet many of Tyco's companies are market leaders, making electrical and electronic components, electronic security services, fire protection systems, medical devices, specialty valves and plastics and adhesives.

Perhaps best known is ADT, which provides security monitoring, fire protection and access control systems for more than 5 million residential, commercial and government customers in this country alone.

Jeff Pittsburg, an analyst and founder of independent Pittsburg Research, has confidence Breen is making the right moves to raise revenues and profits.

"He's a very smart manager," Pittsburg said. "He believes in himself, because why else would he take on this job?"

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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