Welcome back to the Deep Dive. Today we are opening
a file that I think serves as the ultimate Rorschach
test for business history. Oh, that's a good
way to put it. Yeah, because depending on how
you look at it, this is either a story about
the greatest growth engine of the 1990s, or it's
a story about a criminal enterprise disguised
as a corporation. We are talking about Tyco.
Tyco, right. Just saying the name, it brings
back a very specific era of cable news chyrons,
perp walks, extravagant parties. It's almost
a time capsule in a word. It really is. But before
we get into, you know, the scandals and the downfall,
we have to clear up the number one misconception
immediately. Ah, yes, the toys. Exactly. Because
every time I mention Tycho to someone who grew
up in the 80s or 90s, they immediately think
of one thing. Tickle me, Elmo. Or those remote
control cars. The rebound remote control cars,
yes. So we need to put a giant disclaimer at
the top here. We are not talking about Tyco toys.
That was a division of Mattel, a completely different
beast. We are talking about Tyco International.
Although, you know, in a way, Tyco International
was playing with toys, except their toys were
billion -dollar companies. And if they broke
them, thousands of people lost their pensions.
A much higher stakes game. A much higher stakes
game, yes. This is the story of Tyco International,
a massive security and fire protection conglomerate.
I mean, at its peak, it was one of those entities
that seemed to own the actual infrastructure
of the modern world. Right. It was invisible,
but everywhere. Exactly. If you were in a hospital,
you were probably using their needles or their
surgical tools. If you were in an office, you
were protected by their sprinklers. If you sent
an email across the ocean, there was a good chance
it was traveling over their cables. And today,
our deep dive is going to use a stack of financial
reports, court documents, and historical timelines
to really unpack a very specific narrative arc.
We want to understand how a company goes from
a tiny research lab to a global empire that becomes
too big to manage, how it collapses in one of
the most famous scandals of the 21st century,
and then... and this is the part people forget,
how it effectively dissected itself to survive.
It's the ultimate case study in corporate evolution.
It's like it mutated. It started as a single
cell, grew into this incredibly complex organism,
got a very aggressive form of cancer, and then
had to undergo, I mean, just radical surgery
to save the vital organs. That is a vivid image.
So let's go back to that single cell because
the origin story of Tycho is surprisingly...
nerdy. It is. It wasn't founded by some corporate
raider on Wall Street. It was founded by a scientist.
Arthur J. Rosenberg. We are back in 1960 in Waltham,
Massachusetts. Rosenberg establishes Tyco, Inc.
And you're right. This wasn't about world domination
yet. It was an investment and holding company
for two very specific, very technical ventures,
Tyco Semiconductors and the Materials Research
Laboratory. Research Lab. I mean, that sounds
incredibly money. It was. For the first two years,
their primary business was doing experimental
work for the government. They were deep in the
weeds of solid state science, energy conversion.
This was high level physics and chemistry, not
exactly boardroom stuff. So how do we get from
government physics experiments to global manufacturing
giant? Yeah. That's a huge leap. Well, it's ambition.
Rosenberg was a scientist, yes, but he was also
a man who understood where the wind was blowing.
By 1962, just two years in, he incorporates in
Massachusetts and executes the first major pivot.
He shifts the focus from pure research to commercial
application. They start looking at high -tech
materials, science, and energy conservation products,
but for the private sector. That's a crucial
shift, moving from government grants to a product
-based revenue model. Exactly. And to fuel that
shift, they needed capital. So in 1964, Tyco
goes public. And this is the moment where the
Tyco we know, the DNA of the future company,
starts to be born. Because once you have public
stock, you have a currency. You have a currency.
You can use that stock to buy things. And Roseberg
didn't waste any time, did he? Not a second.
That same year, 1964, they made their first acquisition,
Mule Battery Products. Mule Battery Products.
It doesn't exactly sound like a Fortune 500 move.
No, it sounds small, and it was. But it was the
proof of concept. It set the precedent. Rosenberg
realized that developing products from scratch,
what we now call organic growth, is incredibly
slow and expensive. That takes years at R &D.
Years. But if you just buy a company that already
makes the product, you get the revenue, the market
share, the distribution, all of it immediately.
Growth by acquisition. The drug that Tycho would
eventually overdose on. Precisely. And they got
hooked early. Between 1964 and 1968, Tyco went
on an absolute tear. They acquired 16 companies
in just four years. Let's pause on that math
for a second. 16 companies in four years. That's
one every three months. I mean, even for a large,
mature company, integrating a new acquisition
is a nightmare. It's a total nightmare. You have
different payroll systems, different corporate
cultures, completely different supply chains.
For a startup essentially just out of the lab,
that pace is just frantic. It's breathless. They
were essentially trying to build a jigsaw puzzle
by buying random pieces from other puzzles and
forcing them to fit. They were filling gaps in
their development and distribution network, trying
to become a complete player overnight. So this
pattern, this wasn't an accident. It basically
became the company's operating manual for the
next 40 years. That's it. They weren't builders.
They were buyers. So we moved into the 1970s.
For a lot of the economy, the 70s were pretty
rough. Stagflation, oil crises. Yeah, a tough
decade. But for Tyco, this was the boom era.
They completely defied the gravity of the decade.
They started the 1970s with consolidated sales
of about $34 million. Okay, $34 million. By the
end of the decade, sales had topped $500 million.
Wow. From $34 million to half a billion in 10
years. That is massive scaling. And their net
worth hit nearly $140 million. In 1974, they
graduated to the big leagues. They were listed
on the New York Stock Exchange. And the driver
was, again, just more and more acquisitions.
Ambitious ones. This is when they bought Simplex
Technology. They bought Armin Plastics. They
bought the Ludlow Corporation. And most importantly,
they bought Grinnell. Grinnell Fire Protection
Systems. That was the anchor. That was the acquisition
that really changed their identity. Right. I
think anyone who works in an office building
has seen that name. You look up at the ceiling,
Kyle, you see a sprinkler head, and it almost
always says Grinnell. It does. Before that acquisition,
they were sort of a mishmash of materials and
tech. Grinnell anchored them in the infrastructure
space. And fire protection is a great business.
Because it's mandated by law. It's mandated by
law. Every building needs it. It's steady, reliable,
non -cyclical cash flow. But looking at this
list, batteries, plastics, fire protection, electronics,
I'm starting to see the problem. These businesses
don't really talk to each other. Making a plastic
bag and making a fire sprinkler require completely
different engineering, different sales teams,
different raw materials. It's just a random collection.
You've hit on the classic conglomerate problem.
And by the 1980s, Tyco's own management looked
at their portfolio and realized it was a bit
of a garage sale. It was just a bag of random
companies. Exactly. So they tried to organize
the chaos. They did their first major restructuring
into three segments, fire protection, electronics
and packaging. Which is a sensible move. You
know, you group the like items together so you
can maybe share some resources, get some efficiencies.
Right. They wanted to achieve significant. market
share in each product line but the problem with
being an acquisition addict is that you can't
stop shopping just because your closet is disorganized
so later in the 80s they went right back to it
They bought the Grinnell Corporation, expanding
that fire hold. They bought Allied Tube and Conduit
and the Mueller Company, which made water valves.
So the portfolio gets bigger and weirder. And
that necessitated another reorganization. By
the late 80s, they shuffled the deck again. Now
we have four segments. Electrical and electronic
components, healthcare and specialty products,
fire and security services, and flow control.
Wait. Healthcare. Where did that come from? It
just sort of crept in during the acquisitions.
They bought some medical product manufacturers
along the way, and suddenly they had a healthcare
business. And I want you, the listener, to remember
that structure, electrical, healthcare, fire
security, and flow control. Yes. That specific
four -legged stool becomes the architecture of
the entire empire and also the blueprint for
how it's eventually dismantled. Okay, let's unpack
the strategy here before we get to the really
crazy years in the 90s. We've mentioned growth
by acquisition. On paper, Wall Street usually
loves this, right? Because the top line revenue
number just keeps going up. Oh, they love it.
It's an easy story to sell. But is it sustainable?
I mean, really? That is the eternal debate. The
proponents, and Tycho was the loudest proponent,
say it creates a diversified portfolio. If the
construction market crashes, your fire protection
business might hurt. But hey, your health care
business is fine because people still get sick.
It's supposed to smooth out the bunks. That's
the old synergy argument, or at least the stability
argument. Right. But the critics, and this view
became more popular over time, argue that it
creates what's known as the conglomerate discount.
Meaning the whole is worth less than the sum
of its parts. Exactly. Because it is just too
inefficient to manage. The CEO of Tyco can't
possibly know the intimate details of the surgical
suture market and the water valve market and
the circuit board market. So inefficiencies creep
in, bloat creeps in, mismanagement creeps in.
And Tyco was about to test the absolute limits
of how much bloat a company can handle. Because
if the 80s were about structuring the beast.
The 90s were about feeding its steroids. Enter
Dennis Kozlowski. 1992. Dennis Kozlowski takes
the helm as CEO. And under his leadership, the
strategy shifted from aggressive to hyperactive.
I have a number here from our source material
that I frankly had to triple check because it
just seemed impossible. I think I know the one
you mean. Between 1991 and 2001, Tyco acquired,
by some accounts, over 3 ,000 companies. It is
a staggering number. Over 3 ,000. It's almost
incomprehensible. Let's do the math on that.
A decade. That is roughly 300 companies a year.
If you take out weekends and holidays, that is
more than one acquisition every single working
day for 10 years. Think about the due diligence
required to buy a single corner store. You have
to check the books, check the inventory, check
for any legal liabilities. Right. It takes weeks,
months sometimes. Now imagine doing that for
a multinational corporation every Tuesday. It
is physically impossible to do it well. So they
weren't doing it well. They were doing it fast.
That was the only metric that mattered. They
were rolling up the market. They bought everything
in sight. Wormald International, Kendall International,
United States Surgical, Wells Fargo Alarm. The
list is just endless. And in 1993, they changed
the name to Tyco International LTD. to reflect
that they were now this global titan. A titan
built on acquisitions, and the market rewarded
them for it, which just fueled the fire. In 1996,
they were added to the S &P 500. They were officially
blue chip royalty. And being in the S &P 500
gives you a whole new level of legitimacy and
access to capital. It does. And it empowered
them to make even bigger moves. In 1997, they
made an acquisition that really signaled their
intent to own the plumbing of the future. They
acquired AT &T Submarine Systems. Now, when we
say submarine systems, we aren't talking about
military subs with periscopes. No, no. We are
talking about the Internet. We're talking about
the massive fiber optic cables that run across
the ocean floor connecting continents. The physical
backbone of the web. physical backbone. With
this purchase, combined with their existing cable
manufacturing facility in New Hampshire, Tyco
Telecommunications became the world's first vertically
integrated global optical network supplier. Vertically
integrated. Let's break that down. It means they
did everything in the chain. Everything. They
designed the cable. They manufactured the cable.
They loaded it onto their own fleet of specialized
ships. They sailed out and laid it on the ocean
floor, and then they maintained it. That's incredible
control. It's total control. And remember, this
is 1997. The dot -com boom was just starting
to roar. Owning the pipes that carried the internet
seemed like owning the railroads in the 1800s.
It looked like a license to print money for decades
to come. But 1997 was notable for another reason,
a move that was much less about technology and
much more about financial engineering, the ADT
deal. Yes. This is a classic, almost textbook
case study in corporate tax avoidance. So Tyco
merged with ADT Limited, the security giant.
Everyone knows ADT. Right. Now, Tyco was the
bigger company by far. In a normal world, Tyco
buys ADT. Simple. But ADT was incorporated in
Bermuda. And Bermuda has... Let's say favorable
tax loss. Let's say zero corporate income tax.
Right. So they structured this as a reverse takeover.
Technically, on paper, the smaller ADT bought
the giant Tyco. But the new company was still
called Tyco, and it was still run by Dennis Kozlowski
and the rest of Tyco management. Correct. Nothing
changed operationally. But legally, the headquarters
of the combined company moved to Bermuda. This
is called a corporate inversion. So they kept
their operational HQ in the U .S. first in Exeter,
New Hampshire, and later Princeton, New Jersey.
But their tax domicile was an island in the Atlantic.
It's the best of both worlds for them. They get
all the benefits of operating in the U .S., the
massive market, the infrastructure, the legal
system, the talent pool, but they don't pay the
U .S. corporate tax rates. And that saved them.
What, millions, billions? Hundreds of millions
of dollars over the years. Money that Kozlowski
immediately turned around and used to, you guessed
it, buy more companies. Which brings us to 1999.
This seems to be the absolute peak of this insanity,
the billion -dollar buyouts. It was a shopping
spree of epic proportions. They bought AMP Inc.
for $12 .22 billion. $12 billion. And AMP made
what? Electronic connectors. The little plastic
and metal plugs that go inside your computer
or your car or your phone. A foundational, if
unglamorous, business. And then they bought RaycubCore
for another $1 .4 billion. Right. These weren't
small startups they were snapping up anymore.
These were S &P 500 companies being eaten by
a bigger shark. They were swallowing whales.
Absolutely. By the fiscal year 2000, Tyco's revenue
exceeded $28 billion. They acquired Mallinckrodt
Inc. a major healthcare player, and Simplex Time
Recorder Company. merging it with Grinnell to
form Simplex Grinnell. They were now the undisputed
kings of fire protection, security, and electronic
components. It really feels like they were trying
to become the entire economy. I mean, if you
were building a skyscraper in the year 2000,
Tycho made the fire alarms. The security cameras,
the copper wiring in the walls. The fiber optics
connecting the servers in the basement. And probably
the first aid kits on the wall and the syringes
in the nurse's office. It's a very accurate description.
But here's the fundamental problem with building
an empire that fast. You have to pay for it.
And they weren't paying with cash they had sitting
in the bank. No, they were using a mix of their
own. Some say inflated stock and debt, massive
amounts of debt. The numbers are mind boggling.
While the book value of the company was over
$140 billion in 2000, their long term debt had
doubled in a very short period to over $80 billion.
They were leveraged to the absolute limit. And
leverage, as we know, works both ways. It magnifies
your wins when things are good, but if things
slow down even a little, it magnifies your losses
catastrophically. And we are hitting the year
2000. The world is about to change. The tech
bubble bursts. It bursts. And remember that brilliant
AT &T submarine systems purchase? The Tyco Global
Network or TGN? The internet toll road that was
supposed to print money forever? Well, it turns
out that during the battle, everyone and their
cousin had the same idea. Global Crossing, WorldCom.
Everyone was laying fiber optic cable under the
ocean. There was a massive unprecedented oversupply.
We call it dark fiber because there was no light,
no data passing through most of it. Demand just
didn't keep up with the infrastructure they built.
Not even close. It was a classic speculative
bubble. The value of that network, which they
had poured billions into, just plummeted. How
bad was the loss? In 2002 alone, the Tyco Global
Network generated a loss of over $3 billion.
$3 billion. Yeah. Just evaporated from. one division
in one year. It gets worse. They eventually realized
the asset was toxic and they had to unload it.
In 2005, they sold the entire network to VSNL,
which is part of the Tata Group in India. Do
you want to guess the sale price? Well, they
put billions and billions into it. A billion?
Maybe half a billion? $130 million. Ouch. That
is fractions of pennies on the dollar. A rounding
error. It was a financial cataclysm. And it wasn't
the only problem. The sheer complexity of the
company was becoming unmanageable. That conglomerate
discount we talked about was hitting them hard.
Investors couldn't figure out what they were
buying. And so in January 2002, they had this
idea. Yes. Tyco actually announced a surprise
plan to split the business into four separate
companies just to handle the complexity. So the
idea of splitting up, which we will talk about
later, is the solution. actually started way
back in 2002 under Kozlowski. It did. He saw
the writing on the wall. He realized the market
didn't value the whole anymore. But the timing
was just awful because when they announced the
split, the market panicked. Investors didn't
see it as a smart strategic move. They thought
if they're suddenly trying to split up, they
must be hiding a massive liquidity crisis. They
must be desperate for cash. It smelled like desperation,
not strategy. It did. The credit rating agencies
immediately downgraded their debt. The stock
price dropped like a stone. Tyco had to abandon
the plan almost as soon as they announced it.
They were trapped in the very structure they
had built. And then the dam finally broke. 2002
became a year of just financial hemorrhage. An
absolute bloodbath. They lost $9 billion that
year. $9 billion. They tried to sell off their
financial arm, the CIT Group, which they had
acquired not long before in another massive deal.
They took a $6 billion loss on that divestment
alone. These numbers are astronomical. I mean,
we're talking about the GDP of small countries
disappearing from a balance sheet in a matter
of months. The stock price plummeted. Investors
were fleeing in droves. But the financial losses,
as staggering as they were, were about to be
completely overshadowed. Right. Because midway
through 2002, the headlines shifted from Tyco
loses money to Tyco executives steal money. Here's
where it gets really interesting and really,
really dramatic. We're entering the scandal zone.
The scandal of 2002, it stands right there next
to Enron and WorldCom as the defining corporate
crimes of that era. So let's look at the allegations.
What exactly were Kozlowski and the others accused
of? The Manhattan District Attorney, Robert Morgenthau,
brought the charges. He charged CEO Dennis Kozlowski
and CFO Mark H. Swartz with grand larceny, enterprise
corruption and securities fraud. A whole raft
of charges. The core allegation was that they
had effectively looted the company of more than
$600 million. Looted is a strong word. How exactly
were they doing this? I assume they weren't,
you know, walking into the bank vault with burlap
sacks. It was more sophisticated than that, but
honestly, not that much more. A huge part of
it revolved around unauthorized bonuses and benefits.
For example, they created... at something called
the Key Employee Loan Program or KELLP. It was
supposed to be a way for executives to get company
loans to pay taxes on their stock grants. Seems
reasonable on the surface. But Kozlowski and
Swartz allegedly used it as their personal piggy
bank. They would take out millions in loans for
themselves and then they would just forgive the
loans. So I borrow five million dollars from
the company and then I, as an executive, sign
a piece of paper that says I don't have to pay
it back. Exactly. And they allegedly did this
without the proper approval of the board of directors
or, crucially, any disclosure to shareholders.
They were also accused of secretly selling millions
of dollars of their own stock while publicly
telling investors on conference calls that they
were holding onto it, that they believed in the
company. And this brings us to a fascinating
legal concept that played a huge role in the
aftermath, the faithless servant doctrine. Yes.
This is incredible. Years later, in a civil case
in 2010, Judge Thomas Grisa invoked this doctrine
against Kozlowski. It sounds medieval. It's a
very old legal principle rooted in agency law.
It basically says that an employee is a servant
of the employer. And if that servant is faithless,
if they are disloyal, if they steal, if they
act against the employer's interest, they are
not entitled to any compensation for the entire
period of their disloyalty. So it's not just
paybacks the $150 million you stole. No, it's
much more severe. It's payback every single salary
check, every intimate bonus, every stock option
you earn during the years you were stealing.
Exactly. The court ruled that because Kozlowski
was proven to be disloyal between 1997 and 2002,
he had to forfeit all compensation and benefits
earned during that period. That totaled something
like $500 million. That is the nuclear option
of employment law. It is. It sends a powerful
message that you can't be partially honest. You're
either a faithful servant or you aren't. There's
no in -between. But before we get to that conviction,
we have to talk about the criminal trial itself.
Because the first trial in 2004 was an absolute
circus. It was a media spectacle from day one.
You had all these salacious details of Kozlowski's
spending coming out. The famous $2 million birthday
party for his wife in Sardinia with an ice sculpture
of Michelangelo's David that... That peed vodka.
Yeah, that peed vodka. But then the trial itself
was completely derailed by a single hand gesture.
The OK sign incident. Yes. Juror Ruth Jordan,
we are deep in deliberations. The jury is reportedly
deadlocked, leaning towards conviction, but with
one holdout. As the jury is walking through the
courtroom, Jordan, an elderly juror, appears
to look at the defense table at Kozlowski and
Swartz and makes an OK gesture with her hand.
And the interpretation from the media and the
prosecution was that she was signaling to them,
don't worry, I'm your holdout. I'm going to get
you a hung jury. That was the fear. And it caused
an absolute firestorm. The Wall Street Journal,
in a very controversial move, actually published
her name, which is rare for a sitting juror,
and ran a caricature of her. The pressure was
immense. So it became impossible to continue.
The judge felt the jury's impartiality was hopelessly
compromised. He had to declare a mistrial. Unbelievable.
Millions and millions of dollars in legal fees,
months of testimony, and it ends because of a
hand gesture that may or may not have meant anything.
But the reprieve was short -lived. The district
attorney retried the case in 2005, and this time
there were no hand gestures, no holdouts. The
jury convicted Kozlowski and Swartz on almost
all counts. And the sentence wasn't a slap on
the wrist, which sometimes happens in these white
-collar cases. No, this was serious. They were
sentenced to eight and one -third to 25 years
in prison. They serve substantial time. Kozlowski
wasn't granted parole until 2014. It was a very
real punishment. And what about the shareholders,
the people who lost their retirement savings
when the stock tanked from over $60 a share to
less than $10? They eventually got some measure
of restitution. In 2007, a class action settlement
was approved where Tyco, the company, agreed
to pay $2 .92 billion to the defrauded shareholders.
A huge sum. At the time, it was one of the largest
securities class action settlements in history.
Now, I have to mention one specific detail from
the source material, because it really became
the symbol of the whole scandal. We often hear
about golden parachutes or private jets, but
Tycho gave us... The umbrella stand. Ah, yes.
The $15 ,000 umbrella stand. Dog -shaped umbrella
stand, to be precise. Correct. During the trial,
prosecutors listed items that Kozlowski had purchased
with company funds for his New York apartment.
There was a $6 ,000 shower curtain, which is
already absurd. Absurd. But the $15 ,000 umbrella
stand captured the public's imagination. Why
that item? I mean, why not the $2 million party?
That's way more money. It's a concept called
the law of triviality. Most people, myself included,
don't really know what a $2 million party looks
like. It's too abstract. But everyone knows what
an umbrella stand is. Right. You can buy one
at Target for $20. Exactly. The idea of spending
$15 ,000, the price of a decent used car on a
bucket for your wet umbrella, that is viscerally
offensive. It's relatable in its absurdity. It
became the perfect symbol of corporate greed
and a complete disconnect from reality. It really
paints the picture of an executive who had just
lost all perspective. So Kozlowski is out. Swartz
is out. The company is bleeding money and its
reputation is in tatters. The brand is toxic.
Who on earth would want to come in and clean
up this mess? Enter the cleanup crew. In July
2002, the board appointed Edward D. Breen as
the new CEO. He was formerly the president and
COO of Motorola, and he had arguably the toughest
job in corporate America at that moment. I imagine
the first step is just stopping the bleeding.
Triage. The very first step was a purge. Breen
came in with the view that he couldn't trust
the old guard. He effectively gutted the entire
existing board of directors. His logic was, if
you were sitting in the room while Kozlowski
was looting the place and you either didn't know
or didn't stop it, Breen didn't want you there.
That makes perfect sense. You need a completely
clean break from the past. He brought in a whole
new executive team, David Fitzpatrick as CFO,
William Litton as general counsel. He needed
people who were known for integrity and by -the
-book processes, not for creative deal -making.
And I see here he went very heavy on corporate
governance. He had to. He had to signal to the
market that things had changed. He established
a guide to ethical conduct. He made ethics courses
mandatory for all employees worldwide. Does that
stuff actually work or is it just for show? Well,
it can be just for show. But in this context,
it was essential signaling. He had to tell Wall
Street, regulators, and his own employees, we
are not the Wild West anymore. We are going to
be a boring, rule -following company from now
on. So did it work? Did he manage to stabilize
the company? Surprisingly well and surprisingly
quickly. From 2003 to 2006, they really stabilized
the ship. Revenue bounced back to $40 billion
by 2004. And Breen started a massive divestiture
program, selling off 21 non -core businesses.
He looked at the vast portfolio and started asking
the simple question, why do we own this? And
if there wasn't a good strategic answer, he sold
it. He sold it. He started untangling the mess
that Kozlowski had created. They even launched
a new ad campaign, right? Yes. Tyco, a vital
part of your world. A very deliberate attempt
to pivot the narrative. They were trying to shift
the focus from the scandal to the products, reminding
people that Tyco wasn't just Dennis Kozlowski.
It was the surgeon using Tyco instruments to
save a life or the firefighter using Tyco equipment
to put out a fire. But even with all that stabilization,
the Breen era led to a fundamental realization.
Yes. The company was just too big. Yeah. The
growth by acquisition model that built the beast
was also the thing that was killing it. Exactly.
Brain and the new board looked at the structure
and realized that no matter how good the management
was, the structure itself was flawed. The healthcare
division had absolutely nothing to do with the
security division. They were fighting for capital,
fighting for the CEO's attention. There was no
synergy. It was just a holding company. So they
decided to do what Kozlowski had tried and failed
to do back in 2002. They decided to dismantle
the empire. This brings us to section six. The
Great Dismantling. And it wasn't just a simple
split. It was a multi -stage process of breaking
the company down into its atomic parts over several
years. Let's walk through this because it's fascinating
to see where all these famous pieces ended up.
It started in 2007. Right. In January 2007. They
announced the plan, and by mid -year, they executed
the first major separation. They split into three
independent, publicly traded companies. OK, who
were the three players? Player one was Covidian
Ltd. This was the new name for what was formerly
Tyco Healthcare. It took all the medical products,
the bandages, the imaging equipment, the surgical
tools. And COVID went on to become a massive
success on its own. A huge success. It was eventually
acquired by Medtronic in 2015 for nearly $50
billion. A validation that this business was
incredibly valuable when it wasn't shackled to,
you know, a valve manufacturer. Okay, player
two from the 2007 split. Tyco Electronics LTD.
This later rebranded itself as TE Connectivity.
They took all the AMP assets, the connectors,
the sensors. the wiring components. They are
a massive supplier to the automotive and aerospace
industries today. Again, a huge, successful company.
And Player 3. Player 3 kept the name Tyco International
LTD. This entity held on to the core fire and
security business and the flow control and other
engineered product segments. So it was a smaller,
more focused version of the old Tyco. So the
one company became three. But they weren't done
yet, were they? It sounds like the remaining
Tyco is still a bit of a conglomerate. No, they
weren't done. The remaining Tyco International
still felt it was too complex. So in 2012, they
split again. It's like a set of Russian nesting
dolls, but in reverse. It's exactly like that.
It's cellular division. This time, they spun
off the ADT Corporation. This became the standalone
North American residential and small business
security company. If you have an ADT sign in
your yard today, this is where that independent
company came from. And the industrial stuff,
the flow control part. They took the flow control
segment, all the valves and industrial controls,
and they merged it with another company, Pentair.
That division was later acquired by Emerson Electric.
So that piece found a new home as well. So what
was left of the name Tyco after the 2012 split?
What remained as Tyco was the international fire
and security business and the commercial security
business in North America. They branded that
commercial side as Tyco Integrated Security.
So a much smaller, much more focused company.
So we've gone from one massive, incomprehensible
blob to Covidian, TE Connectivity, ADT, a piece
inside Pentair and a smaller, leaner Tyco. And
then came the final chapter for Tyco's independence.
In 2016, what was left of Tyco merged with Johnson
Controls. Johnson Controls is another huge name
in building efficiency, HVAC systems, batteries.
Right. It was a merger of two giants in the smart
building space. The combined company took the
name Johnson Controls International Power. And
with that merger, Tyco as a standalone parent
entity effectively ceased to exist. It's just
incredible. It took 40 years to build this massive,
sprawling empire. about 10 years to take it all
apart piece by piece. And the irony is the parts
were arguably much more successful and valuable
on their own than they ever were when they were
all glued together. It's the ultimate proof that
the conglomerate discount was real. The market
was right. Once these businesses were set free
from the central holding company, they thrived.
Before we wrap up, we have to look at one more
aspect of the Tyco legacy, because while they
were busy buying companies and handling scandals,
they were also. You know, a real manufacturing
company making physical things. And that left
a footprint. A very real one, yes. The environmental
record. You can't run a manufacturing empire
of that size, especially one built so quickly,
without impacting the environment. And Tyco had
some serious violations that showed it wasn't
just financial corners they were cutting. Let's
look at the specifics from our sources. We have
notes on a facility in Hamburg, New Jersey. Right.
This was a metal forming and finishing facility
they operated for decades. They were fined over
$1 .1 million by the EPA for Clean Air Act violations.
The issue was their use of trichloroethylene
to degrease metal parts. Trichloroethylene. That
sounds nasty. It is. It's a volatile organic
compound, a VOC. It's a toxic air pollutant that
can cause serious health effects. And they were
venting it into the atmosphere without proper
controls. And then there was the situation in
Connecticut. This one reads like a villain plot
in a movie. It doesn't sound like just negligence.
It feels very deliberate. This was at their plant
in Enfield, Connecticut. It was a Clean Water
Act violation. The plant had sand filters installed
to treat their industrial wastewater before it
was released into the public sewers. And sand
filters are slow, right? They take time. They
are. They create a production bottleneck. And
when you are under immense pressure from a CEO
like Dennis Kozlowski to increase revenue and
output every single quarter, bottlenecks are
the enemy. So what did they do? Managers at the
plant deliberately routed the wastewater around
the sand filters. They installed a bypass pipe.
Effectively, yes, a secret bypass to speed up
production. But it meant they were discharging
untreated wastewater with toxic levels of copper
and led directly into the Manchester public sewers.
And they knew they were doing it. They falsified
reports to the Department of Environmental Protection
to cover it up. It eventually came out. And it
resulted in $10 million in fines and guilty pleas
from the managers involved. That is the definition
of putting profit over public safety. And it
connects directly back to the corporate culture
of the scandal. The pressure to perform to meet
the numbers at all costs was so high that it
corrupted everything from the accounting department
in the executive suite to the factory floor.
If you are willing to fake the earnings reports,
you're probably willing to fake the environmental
reports. And when they acquired Ansel, a fire
protection company, they also inherited a massive
arsenic salt contamination issue from that company's
past. That's the other side of the acquisition
coin. When you buy a company, you buy its assets,
but you also buy its sins. You acquire its pollution
liabilities. Tyco had to spend millions cleaning
up messes they didn't personally create simply
because they bought the company that did. So
what does this all mean? We've looked at the
rise, the fall, the crime, the punishment and
the dismantling. What's the big takeaway from
the Tyco saga? I think if we zoom out, Tycho
is the ultimate cautionary tale of growth for
growth's sake. For a long, long time, Wall Street
loved the story. We buy companies, we get bigger,
our stock goes up, we make you money. But there
was no underlying industrial logic. It was just
complexity masking inefficiency. Exactly. And
complexity is a great place to hide fraud. When
you have literally thousands of subsidiaries
and billions of dollars moving around the globe,
it's much easier to hide $150 million theft or
a $15 ,000 umbrella stand. No single auditor
can possibly check everything. It also challenges
the idea of the super CEO, the cult of personality.
Kozlowski was treated like a business genius
until he wasn't. And then Ed Breen, the guy who
came in to fix it, didn't try to be a genius
builder. He was a dismantler. His genius was
in realizing that the value was in the pieces,
not the whole. He proved that sometimes the best
way to manage a giant company is to admit that
it shouldn't exist in that form. So here is a
provocative thought for you to chew on as we
finish up. We live in an era of constant tech
mergers and massive conglomerates. Big companies
are buying smaller ones every single day. Tyco
shows us that sometimes the most valuable move
isn't building an empire, but breaking it apart.
When a company owns everything from diapers to
fiber optics to nuclear valves, can anyone really
know what's going on inside? I think the answer,
as Tyco proved so dramatically, is no. And when
no one really knows what's going on, that is
when the umbrella stands start showing up on
the expense reports. A vital lesson for investors
and business leaders alike. Thanks for listening
to The Deep Dive. We'll catch you on the next
one.