Tyco Dresses for Success

Did Tyco tart up its takeover targets? Managers at Raychem Corp. tell their story.

Did management at Tyco International instruct companies it was about to acquire to pay as many bills as they could before their deals were completed? This is what Wall Street skeptics have been charging for several years.

Their reasoning: Tyco management would then be able to make the company’s earnings and cash flow look good during the first quarter after a deal went through. Executives at Tyco have repeatedly disputed this allegation.

But it appears managers at Raychem Corp., which Tyco bought in August 1999, actually took action to accelerate certain payments — at Tyco’s request. Or at least, that’s the claim of the Wall Street Journal, citing internal e-mails at Raychem.

According to the Journal, Lars Larsen, then Raychem’s treasurer, sent an email to finance department employees at the time of the acquisition. In that message, Larsen reportedly said that “Tyco would like to maximize cash outflow from Raychem before the acquisition closes.”

A few days later, Larsen reportedly sent another e-mail, saying that at “Tyco’s request” Raychem was planning to pay all bills due to suppliers “whether they are due or not.” He added that Raychem “agreed to do this, even though we will be spending money for no tangible benefit either to Raychem or Tyco.”

A few days later, Larsen reportedly sent another E-mail, saying that at “Tyco’s request” Raychem was planning to pay all bills due to suppliers “whether they are due or not.” He added that Raychem “agreed to do this, even though we will be spending money for no tangible benefit either to Raychem or Tyco.”

By Larsen’s reckoning, these transactions would eat up between $55 million and $60 million of cash. He also calculated it would cost an extra $125,000 in interest because Raychem would be paying some bills that weren’t yet due. The Journal added that the memo was copied to two Tyco executives.

Tyco executive vice president J. Brad McGee denied the charges in the story. He insisted the payments discussed in the E-mails were investigated by the SEC in 1999 and 2000 as part of a more comprehensive examination of Tyco’s accounting. The commission ended its investigation in mid-2000, however, taking no action.

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