The new chief of Tyco is considering making acquisitions again, less than two years after the industrial conglomerate almost collapsed due to the over-aggressive expansion of predecessor Dennis Kozlowski.
Ed Breen, chairman and chief executive, said his turnround strategy was now generating sufficient cash for debt reduction that the company would need to look around for different ways of spending it from next year, including possible takeovers.
Leon Cooperman, an investor at Omega Advisers, said: "We are woefully underleveraged looking out 18 months, which is a miracle considering where we were a year and a half ago."
Mr. Breen was appointed in July 2002 after Mr. Kozlowski resigned facing tax evasion allegations — followed by fraud and theft charges that he still faces.
Since then, Tyco has reeled from the scandal and struggled to contain mountainous debts, leading many to question whether its collection of security, engineering, electronics and healthcare businesses should ever have been assembled under one roof.
On Tuesday, the company provided the strongest evidence yet of a turnround with results for the first three months of the year ahead of expectations. Net income jumped sixfold from $124 million in the same period last year to $782 million on revenues of $10 billion. Profit forecasts for the full year were increased from between $1.42 and $1.52 a share to between $1.52 and $1.58.
Favorable conditions helped generate growth in most divisions as well as free cash flow of $1.4 billion, allowing $1.2 billion of debt reductions to bring outstanding net down to $14.6 billion. Tyco said it was on track to reduce net debt further to between $10 billion and $12 billion by next year but also confirmed that $4.5 billion of this related to loans which were likely to convert to equity. Tyco shares rose $1 on Tuesday to $29.
Mr. Breen said: "Going into the middle of next year we will have cash available to look at our options for what else we are going to do [apart from paying down debt]. We will look at everything: Share repurchases, increased dividends and potential acquisitions. We will be very careful and diligent but we are going to address that question because we are getting there quickly."
Despite this, Tyco debt is still rated two notches below investment grade and the company is only one-fifth of the way through a disposal program. Mr Breen added: "I am pleased with the progress we are making in our efforts to build an operating company culture here at Tyco. We are still in the early innings but we are gaining traction."