yco (nyse: TYC - news - people )operates a diversified portfolio of businesses in a wide range ofindustries from electronics to fire and safety, as well as engineeredproducts and health care. The conglomerate, however, is best known forits former CEO Dennis Kozlowski and his bad habit of spendingshareholder money on personal extravagances such as a $6,000 showercurtain and a Sardinian birthday party (complete with a live JimmyBuffett show) for his second wife.

Since 2002, former Motorola (nyse: MOT - news - people ) president Ed Breenhas been Tyco CEO. During that time, he has restored some credibility,stabilized the business, stopped making acquisitions and cut expenses.Especially appealing to Tilson and Tongue, Breen may have almost beentoo cautious and in the process built an overly conservative balancesheet compared to the debt-laden ship that Kozlowski had captained.

Tyco has a $65 billion market capitalization and long-term debtof $10.5 billion for a debt-to-equity ratio of 0.28. In the 12 monthsended March 30, 2007, the company earned $3.7 billion on revenue of$42.4 billion, and generated operating cash flow of $6.3 billion. Atabout $33, shares of Tyco are up 21% in the past year, and trade for16.8 times the consensus forecast for 2007 earnings per share of $1.96.

Before the end of June, Tyco will spin off the electronics andhealth care divisions, which will become independent, publicly tradedcompanies. The spin-off is structured as a tax-free distribution andexisting Tyco shareholders will hold 100% of the equity in the threecompanies.

Tilson and Tongue believe that Breen can wring furtherefficiencies out of Tyco’s business units and either boost thecompany’s profitability for shareholders or open up possibilities tosell off additional units to strategic or financial buyers. Given theboom in mergers and acquisitions this year, Tilson and Tongue believethat the individual Tyco's parts will prove particularly appealing toprivate equity investors or a competitor.

For those who followtechnical analysis, Tyco is within 10% of its post-Kozlowski high of$36 per share, which it hit in January 2005.