Goldman Sachs Group Inc, Merrill Lynch & Co, Lehman Brothers Holdings Inc and other Wall Street firms may make as much as US$500 million helping Tyco International Ltd split itself apart, analysts said.
Tyco's plan to become four companies will in part reverse US$64 billion of acquisitions since 1993 -- transactions that also earned investment banks millions of dollars in fees.
The breakup involves a minimum of three initial public offerings, the shedding of US$11 billion in debt and the sale of Tyco's plastics business. The IPOs alone may generate underwriting fees of US$337.5 million, according to Sanford C. Bernstein & Co analyst Brad Hintz.
Goldman, acting as Tyco's sole financial adviser on the split, will be led by bankers Jack Levy, Jeffrey Moslow and James Katzman. That gives Goldman the lion's share of the investment banking business, though Tyco is likely to have many advisers and underwriters.
"I would expect Goldman to get a bigger piece of the business than the others," said David Trone, an analyst at Prudential Securities Inc, who said fees related to the breakup, which was announced Tuesday, could be as much as US$500 million.
While Goldman has the best investment banking relationship with Tyco, the diversified manufacturer used 13 banks led by Goldman and Citigroup Inc's Salomon Smith Barney for the US$1.96 billion initial stock sale of fiber-optic cable-maker TyCom Ltd in July 2000.
Tyco announced 37 acquisitions last year, according to Bloomberg data, and Goldman participated in three of the largest: the completed US$10.3 billion buyout of CIT Group, which also involved Lehman Brothers; the proposed US$2.6 billion takeover of medical device maker CR Bard Inc, which involves Merrill Lynch, and the US$970 million repurchase of TyCom.
Advising Tyco in the various transactions could add 12 cents a share to Goldman's fiscal 2002 earnings, Hintz said. Goldman shares rose US$1.80 to US$87.30.
Tyco will need to raise about US$11.45 billion in cash to retire US$11 billion in debt, plus a 4 percent premium, Hintz said.
To fund that, Tyco intends to sell its plastics business for about US$3.5 billion and offer about US$8 billion in stock for three subsidiaries: financial services, health care, and fire and flow control.
Goldman will earn US$17.5 million in fees for the plastics unit sale, Hintz estimates, and about US$192 million in underwriting fees as a lead manager.
Tyco and Goldman declined to talk about their relationship.
Tyco director of investor relations Jack Blackstock and spokeswoman Maryanne Kane declined to name those in the running for the contracts.
Aside from Goldman, Merrill Lynch also has Tyco connections.
Investment banker Richard Johnson worked two years at Tyco before returning to Merrill's mergers group in late 2000. Merrill also advised Tyco on its US$12.3 billion acquisition of AMP Inc. in 1999.
Banks that gain Tyco's business face a hard sell, investors said. Tyco shares have fallen about 18 percent this month; among investor concerns are possible capital gains bills related to the spinoffs, the chance that the CR Bard transaction may fail, and questions of whether Tyco has accounting problems. Tyco shares rose US$0.63 to US$45.
"The company is undergoing a change in shareholders," said Marshall Front, chairman of Front Barnett Associates LLC, which manages US$2.5 billion in Chicago and owns Tyco shares. While he dismissed the possibility of accounting issues, the bankruptcy of Enron Corp and its accounting problems are causing investors to worry, he said.
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