The travails of Tyco.

• Author: Sweeney, Paul
• Position: Corporate Strategy

The huge corporation is facing a battery of troubles, including questions about its accounting.

But nothing is more distressing to the markets than concerns about its fundamental conglomerate strategy.

Consistency is a cherished word on Wall Street. It's a key trait that investors look for in a company and its management, and when it starts to unravel, so can the stock -- and its reputation.

That appears to be what is happening now with Tyco International, whose creation of an enormous conglomerate -- driven by a pell-mell acquisition strategy during the past decade -- has been questioned by management itself. Coupled with questions about its accounting, the strategic confusion and some apparent floundering to regain its footing have cost the company dearly. Earnings have been restated for several periods, crucial debt ratings have been lowered, increasing borrowing costs, and the stock price has plummeted.

The furor surrounding the company and the stock has been an embarrassment for hard-charging CEO L. Dennis Kozlowski, whose shining record until this year had made him a popular management-circuit speaker. And it has renewed long-standing questions about the fundamental value of conglomerates, especially the questions that analysts often ask: Is there a unifying vision? And, are the parts worth more than the whole?

Those questions have been particular gnawing for Tyco, whose disparate parts often appear to provide few synergies. When the stock took a severe beating in the winter, Tyco responded quickly. But its announcement that it wanted to split into four parts looked foolish only three months later, when it rescinded that plan after management confessed that the divisions would attract only "fire sale" prices and not the value it had expected.

On April 25, Tyco announced in a letter to shareholders that it would keep all of its divisions intact, save for Tyco Capital -- the new name for the CIT Group, acquired less than a year ago -- which would be spun off in an initial public offering. When it then announced losses of $1.9 billion for the second quarter, its stock price kept tumbling -- losing 50 percent of its value from the beginning of the year and some $80 million in market capitalization from its peak.

Not that long ago, Tyco, which is registered in Bermuda but runs its sprawling operations out of offices in Exeter, N.H., was a perennial darling of Wall Street. By 2001, thanks to its shopping spree, Tyco had become a $36 billion (sales) company, a quantum leap from the $2.5 billion in sales it posted in 1992, and Wall Street was cheerleading its 25-40 percent earnings growth rates. "Tyco has the strongest fundamentals and the best business mix of the diversified companies in our universe," a Lehman Brothers report once declared.

Whatever the hype, Tyco's management had unquestionably proved it could roll up...