Tyco International’s move to break itself into three separate pieces was welcoming news for a number of hedge funds that piled into the stock in the second quarter.
At least four hedge funds took sizable new stakes in the conglomerate in the three months ending in June.
Dan Och’s OZ Management scooped up more than three million shares, making it the second largest new shareholder in the period, behind Massachusetts Financial Services, the institutional and mutual fund giant. Tyco was OZ Management’s fourth largest holding as of June 30.
Empyrean Capital Partners, founded in 2004 by former Goldman Sachs partners Michael Price and Amos Meron and former Canyon Capital Advisors principal Scott Imbach, bought 2.4 million shares of Tyco in the second quarter, making the stock its second largest holding.
Eton Park, founded by Eric Mindich, the youngest Goldman partner, bought more than 1.8 million share of Tyco while Alyeska Investment Group, founded in 2008 by Anand Parekh, formerly of Citadel Investment Group and Deutsche Bank, scooped up one million shares in the three-month period.
Despite the better-than 2 percent climb on Monday when the broader market was down around 2 percent at one time, none of these new positions in Tyco are in the black. As it turns out, at around $44.64, the stock is still trading below the lowest possible price anyone could have paid from April through June — $45.25.
However, this may be temporary. According to published reports, Wall Street analysts have valued the sum of the three parts — ADT North American residential security, flow control, and commercial fire and security — at somewhere between $51 and $56 per share.
In fact, Standard & Poor’s Monday raised its target price by $6 to $52, stressing it is “valuing each unit at a small premium to peers using sum of the parts.” Even so, it maintained its rating on the stock at “Hold.”
The de-conglomeration of corporate America seems to be a theme this year, however, as a number of companies are either breaking into pieces or are planning to, including Motorola, McGraw-Hill and ConocoPhillips.
In fact, former hedge fund manager and activist Carl Icahn pushed for Motorola’s break up while hedge fund Jana Partners instigated McGraw-Hill’s plans.
Expect a growing number of hedge funds to be searching for other conglomerates with unrelated businesses that may follow these companies and announce break-ups. Some of these investors will be catalysts, others will be passive beneficiaries.
