Tyco Buys Amp in $11.3 Billion Deal
Connector manufacturer Amp Inc. staved off the AlliedSignal hostile takeover attempt with the announcement of its acquisition by Tyco International Ltd. According to the terms of the agreement, Tyco will purchase Amp in a tax-free, stock-for-stock transaction that should be worth $51 per share, or $11.3 billion. Based on Tyco's Nov. 20 closing price of $65 and specific market conditions, AMP shareholders should receive 0.7839 share of Tyco stock for each AMP share. Last week the boards of both companies approved the deal, which is expected to close in early 1999.
Tyco said it will merge Amp's $5.7 billion worldwide connector business into a subsidiary, and Amp revenues will immediately be added to Tyco's earnings. Amp president Robert Ripp will have a seat on Tyco's board and will remain president of Amp Inc.
AlliedSignal comes poaching
News of the deal came four months after AlliedSignal Inc. launched an attempt to buy Amp for $44.50 per share, or $10 billion. AMP stock had dropped to $29 per share before Allied-Signal launched its unsolicited takeover bid. The two companies engaged in a complicated legal dance, maneuvering both in and out of court as Amp fought the acquisition.
In July, Amp launched a cost-cutting plan, but AlliedSignal told Amp shareholders a takeover would represent better value. AlliedSignal then asked Amp shareholders to tender their shares; the company was able to purchase 20 million Amp shares at $44.50 before the deal was thwarted by Amp's legal maneuvers.
AlliedSignal tried to expand Amp's board, adding 17 of its chosen nominees and getting them approved via a ballot mailed to Amp shareholders. But Amp blocked that action by filing a conflict-of-interest suit in U.S. District Court. The week of Nov. 16, the court cleared the way for Allied Signal's mail-in ballot. Just over a week later, however, the Tyco acquisition was announced.
In a final salvo, AlliedSignal chairman and CEO Lawrence Bossidy issued a press release saying that "the price being paid by Tyco clearly exceeds the value AlliedSignal places on AMP."
Tyco's motivation
According to industry insiders, the Tyco-AMP fit isn't obvious. Most of Tyco's holdings are in security and fire-protection equipment. The company's components business, which includes undersea fiber-optic cable for telecommunications, makes up only 9% of the company's 1997 sales (about $566.7 million).
"A key element in the Tyco deal is the higher price," said Ron Bishop, president of Bishop & Associates, a market researcher for the connector industry. "I don't think there is a great strategic reason," he said, noting that Amp's $6 billion in electronic-component sales dwarf any other company in that industry.
In a letter to customers, AMP chief Ripp pointed out the fit between Amp's component and backplane assembly technologies and Tyco's fiber-optic cable business. The Amp deal also suits Tyco's aggressive acquisition strategy. Largely as a result of acquisitions, the company's revenue rose from $2 billion in 1992 to an estimated $17 billion in 1999.