Shares in manufacturing conglomerate Tyco were suspended in New York last week after an analyst questioned some of the accounting policies used by the group during its recent £18bn acquisitions spree.
Tyco, which is based in Bermuda, saw its share price fall by almost 10% after the comments by David W Tice, an investment manager and short-trader.
Although the drop mirrored other falls on Wall Street last week, the extent of the downturn reflected concerns at Tice’s claims that Tyco had hidden a decline in cash flow by delaying some payments and had inflated future earnings forecasts.
Tyco reacted to the claims by coming out fighting. The group, which failed in July to agree a tie-up with Williams, the UK locks and security products group, denied the allegations and declared that it would take `appropriate action against the source of the false rumours’.
Dennis Kozlowski, the chairman and chief executive, said fourth quarter results out this week would exceed earnings forecasts. And he denounced suggestions that Tyco’s earnings had been inflated by large charges taken when making acquisitions.
`The strength of our earnings is further enhanced by our focus on the generation of free cash flow,’ he said. `As a testament to the equality of these earnings, our free cash flow expectation for the next year represents a very high percentage of our expected net income.’
Analysts described the rumours about accounting irregularities as speculation, and none changed their forecasts for the group.
Among Tyco’s recent acquisitions are: Haden Engineering, for £20.8m; Glynwed’s metal-processing operations (£145m); Raychem ($2.87bn [£1.72bn]), AFC Cable Systems ($575m [£344.7m]); Siemens’s electro-mechanical components division ($1.1bn [£0.6bn]); and General Surgical Innovations ($100m [£59.9m]).
* Williams announced two related deals in Norway last week. It is buying two fire protection systems companies for £17m from Eltek Group. The companies being bought are Heien-Larssen and Norfass, both makers of fire protection systems for ships and oil platforms.