Tyco CEO resigns amid probe into possible tax evasion
CONCORD, N.H. (AP) – After weathering months of criticism and a plummeting stock price at Tyco International Ltd, chief executive L. Dennis Kozlowski resigned abruptly amid a disclosure Monday that he is being investigated for possible sales tax evasion on his vast personal fortune. Tyco shares tumbled nearly 25 percent in midday trading. The company, hit hard by questions about its complex accounting practices and its business strategy, said Kozlowski had stepped down as CEO and chairman for “personal reasons.”
Tyco, based in Bermuda but run from Exeter, N.H., said board member John Fort, who headed Tyco from 1982-1992, would take over immediately as interim chief executive.
Shares of Tyco fell 24.6 percent, or $5.40 a share, to $16.55 in midday trading on the New York Stock Exchange. Analysts said even though the investigation appears to focus on Kozlowski’s personal finances, it raises concerns about how he ran the company.
“He’s someone that pushed the envelope, and this is something that could lead to further questions of the company,” said Steven Altman, an analyst with Commerzbank in New York.
The New York Times reported Monday that Kozlowski has been under criminal investigation by the office of the Manhattan District Attorney in New York for several months.
Prosecutors believe Kozlowski moved hundreds of millions of dollars into family trusts, then used the trusts to buy goods and services without paying New York state sales taxes, lawyers involved in the investigation told the Times.
“We have a sales tax investigation involving Kozlowski and others,” said Sherry Hunter, a spokeswoman for Manhattan District Attorney Robert Morgenthau. She declined to elaborate.
In the last few weeks, a grand jury has issued subpoenas and taken testimony, the lawyers told the newspaper. No criminal charges have been filed.
Kozlowski’s lawyer, Stephen Kaufman, had no comment. Kozlowski and Fort could not immediately be reached to comment.
Tyco executive vice president Brad McGee said Kozlowski told the company’s directors Friday about the investigation and said he would resign.
The resignation is another big blow for Tyco, which has struggled for months to regain lost investor confidence prompted by questions about accounting practices involving the company’s acquisitions. Critics say Tyco used accounting tricks when it bought companies to make its profits appear to grow faster than they actually did.
Tyco made its reputation by acquiring a new company nearly every business day during the 1990s, transforming itself into a conglomerate with more than a quarter million employees who churn out products ranging from steel fence posts to undersea fiber optic cable.
Behind all of the dealmaking was Kozlowski, an accountant who rose through the ranks of the company to the top post, where he screened more than 1,000 acquisition targets a year with a team of close aides and settled on 200 or so to buy.
He built Tyco into one of the world’s largest companies and also gained a personal fortune by selling Tyco stock during the boom years of the late 1990s.
Tyco officials on Monday defended Kozlowski’s performance at the company.
“During his tenure, Dennis Kozlowski grew Tyco to a $36 billion manufacturer and service provider operating in over 100 countries. We wish him well and thank him for his contributions,” Fort said in a statement.
But Tyco stock has sunk from a 52-week high of just over $60 a share in December.
Kozlowski announced a plan to break Tyco into four separate companies in January, then reversed course in April. At the time, some investors said he should resign, but Kozlowski said he would stay on.
Tyco, which manufactures electronic equipment, fire and security systems and disposable medical supplies, plans to sell its finance unit by the end of June and use the proceeds to help pay off $10 billion in debt, company officials said Monday.
The company employed 277,000 people worldwide as of April 1.
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