Eminence Capital sells its share in Tyco International

Market Realist

Assessing Eminence Capital's 4Q13 positions in Humana and more (Part 7 of 7)

(Continued from Part 6)

Eminence Capital and Tyco International

Eminence Capital initiated new positions in The Men’s Wearhouse Inc. (MW), KAR Auction Services Inc. (KAR), Humana Inc. (HUM), and Valmont Industries (VMI). The fund exited its positions in Pandora Media Inc. (P) and Tyco International (TYC).

Eminence Capital eliminated a position in Tyco International (TYC), a maker of fire safety and security systems, that accounted for 1.98% of the fund’s 3Q portfolio. The position was initiated in 2Q 2010, according to 13F filings.

The Switzerland-based Tyco is a leading global provider of security products and services, fire detection and suppression products, and services and life safety products. Its broad portfolio of products and services, sold under well-known brands such as Tyco, SimplexGrinnell, Sensormatic, Wormald, Ansul, Simplex, Grinnell, Scott, and ADT (in jurisdictions outside of North America) serve security, fire detection, and suppression and life safety needs across commercial, industrial, retail, institutional, and governmental markets, as well as non-U.S. residential and small business markets. The company has three operating segments—namely, North America Installation & Services, Rest of World Installation & Services, and Global Products.

In September 2012, Tyco completed the spinoffs of The ADT Corporation (ADT) and Pentair Ltd. (PNR)—earlier known as Tyco Flow Control International Ltd., formerly its North American residential security and flow control businesses, respectively—into separate publicly traded companies. What remained was Tyco, a pure-play fire protection and security company.

Tyco recently announced the sale of its South Korean security business ADT Korea to The Carlyle Group in a cash transaction valued at approximately $1.93 billion. The proceeds will be used for earnings-accretive activities, such as strategic acquisitions, share repurchases, and organic growth initiatives, as well as other corporate purposes. Tyco also announced that its board approved an additional $1.75 billion authorization for share repurchase. This is in addition to the remaining $250 million authorization, bringing the total share repurchase authorization to $2 billion.

TYC hedge

Tyco beat Street estimates in its 1Q 2014 results. Tyco reported $0.57 in GAAP diluted earnings per share (EPS) from continuing operations for the fiscal first quarter of 2014, up from $0.34 a share, a year earlier driven by strong execution across all three segments. Revenue in the quarter increased 2% versus the prior year to $2.65 billion. In 4Q 2013, Tyco saw a 6% organic decline in its global installation business, driven primarily by project selectivity in North America and weakness in non-residential construction markets particularly in Europe and Australia.

North America Installation & Services revenue of $957 million decreased 2% in the quarter, primarily due to the divestiture of the guarding business. Rest of World Installation & Services revenue of $1.1 billion increased 3% in the quarter, driven by acquisitions. Global Products revenue of $565 million increased 6% in the quarter, including a 4% benefit from acquisitions. During the quarter, the company closed its acquisition of Westfire, Inc., a leading fire installation and services business in the mining and special hazard verticals in the United States, Chile, and Peru, which is expected to generate approximately $80 million in revenue in fiscal 2014. Tyco also completed the sale of its Armourguard business in New Zealand and its fire and security business in Fiji, which together generated $80 million of revenue in fiscal 2013.

To learn more about recent 13Fs for hedge fund ownership, see the Market Realist series Lee Ainslie and Maverick Capital’s 4Q13 positions.

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