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Tyco shows gains ahead of CIT Group IPO

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Shares of Tyco Intl. (NYSE:TYC) $13.87 +2.66% are trading higher today on optimism that the industrial conglomerate will see healthy demand for its spin-off and initial public offering of CIT Group (NYSE:CIT) tomorrow.

Tyco (TYC) is spinning off its CIT Group (CIT) after buying it in March of 2000 for roughly $9.2 billion in stock. CIT Group will trade under its old ticker (CIT).

CIT Group plans to offer 200 million shares at $25 to $29 each. Given a mid-range of $27.50 and 200 million share offering, the deal totals about $5.5 billion, substantially less than TYC's purchase price just over a year ago.

The move should generate some much-needed cash for Tyco (TYC), which has had to up its payouts on it corporate debt after its bonds received reduced ratings in recent weeks.

Tyco Intl. Chart - Daily Interval

Accused of "fueling growth through acquisitions," shares of Tyco Intl. (TYC) have been punished so far this year, plummeting some 83% from their December 31st close. Tomorrow's IPO of CIT Group (CIT) gives some credence and perhaps admittance that the TYC may have paid a little too much for CIT, or that the economy simply lost too much steam to harness the benefits of CIT's assets.

Renaissance Capital, which runs the IP Plus Funds (IPOSX) $8.24 +1.10%, said the number of IPOs rose 5% and filings jumped 96% in the first six months of 2002, compared to year-ago levels.

Renaissance Capital said that CIT Group is knows as the owner of $34 billion of assets, with lease and finance offerings ranging from airplane leasing to home equity loans. "When the economy embarks on a sustainable recovery, CIT should be well positioned to capture growth because of its broad base of economically sensitive assets."

Since Tyco bought CIT Group, it has shed $5 billion of non-core and less profitable assets and businesses, and some $150 million excess costs were wrung out.

Jeff Bailey
Senior Market Technician
Option Investor

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