The battered conglomerate named Edward Breen, a former president and chief operating officer of Motorola Inc., to replace longtime CEO Dennis Kozlowski, who resigned in June just before a criminal indictment on tax evasion charges.
Kozlowski's indictment, along with investor concerns about Tyco's accounting practices and a crisis of confidence in its leadership, has tanked the company's stock this year and stripped it of about $90 billion in market value.
Tyco shares on Thursday sank 30 per cent to a six-year low of $7 in midday trading on rumours the company was considering a bankruptcy filing. The stock rose sharply in after-hours trading after it announced Kozlowski's replacement.
Breen said in a statement that he will work to restore confidence in Tyco among employees, suppliers, customers and the financial community. The company has been wracked by poor communication, and Breen's appointment was no exception.
Analysts had just gotten off a conference call with Tyco Chief Financial Officer Mark Swartz, who said he had no update on the company's CEO search. The call was convened to quell rumours Tyco faced financial straits, and the announcement was made less than an hour after the call was over.
"It came right out of space," said Steve Altman, a credit analyst for Commerzbank Securities. "That was the last thing I was expecting to hear this afternoon. Preliminarily, I think it's fantastic."
Shares surged in after-hours trade from a close of $8.25 to $10.05.
Swartz said Tyco has $7 billion in cash on hand, and plans to buy back $2 billion of debt in the current quarter at a $200 million discount - an indication of its financial strength.
"The significant rumour today was that given our financial position we have engaged either financial attorneys, or bankruptcy attorneys or (reorganisation) attorneys," Swartz told analysts.
"Not only have we not hired any. We have not even consulted with any," he said.
While there has been persistent worry over Tyco's accounting, the company's stock also has been caught in a whirlwind sell-off this year as corporate fraud and scandal at other companies grips Wall Street.
"We're dealing with an uncertain market, a difficult earnings season, and now we have to deal with a spectre of CEOs and CFOs signing off on balance sheets," said Joseph Dorilio, head of trading at investment firm ING Financial Markets.
Kozlowski stepped down a day before he was charged with dodging about $1 million in New York sales taxes on artwork purchases.
A state prosecutor and the US Securities and Exchange Commission also are investigating whether Tyco corporate funds were improperly used to enrich executives.
Ron Muhlenkamp, whose Muhlenkamp Fund owns about 1.5 million Tyco shares, said the conglomerate is worth more than $20 a share because of the strength of its underlying businesses, which includes electronics, ADT burglar alarms, diapers and medical supplies.
On Tuesday, Tyco reported a $2.32 billion net loss for the June quarter, largely due to a loss on the recent sale of CIT Group Inc. Tyco's financial results also showed deteriorating cash flow from its businesses.
Tyco cut its cash flow forecast for the fiscal year that ends September 30 and provided more conservative cash flow guidance for 2003.
Harriet Baldwin, a Deutsche Bank analyst who rates Tyco's stock as "strong buy", said the conglomerate faces a $1.5 billion funding gap that needs to be closed by November 2003.
Baldwin said she has "good confidence" Tyco can fill that gap with a new bank facility and sales of non-core assets. Tyco reiterated that strategy.