Tyco Healthcare Group, one of the worlds biggest hospital-supply companies, is an old and familiar name in healthcareperhaps a little too familiar.
The global vendor, once recognized principally for its market reach and corporate clout, has lately become something of a casualty of its close association with parent Tyco Internationala name that has become synonymous with corporate gluttony, accounting fraud and $6,000 shower curtains. That familial connectionthe business variation of guilt-by-associationwill evaporate sometime in the next several months, when Tyco Healthcare sheds its well-known moniker and renames itself Covidien, becoming a publicly traded company independent of its scandal-scarred parent.
Officials with Tyco Healthcare, a business behemoth that boasts more than 10,000 products and annual revenue approaching $10 billion, say the name change has nothing to do with the long-running scandal that sent Tyco Internationals stock tumbling and landed its chief executive officer in prison for more than eight years.
The new name will serve as a celebration and rallying point for 43,000 employees around the world, says Eric Kraus, senior vice president of corporate communications at Mansfield, Mass.-based Tyco Healthcare, whose products include disposable medical supplies, monitoring equipment, advanced surgical devices and bulk pain medications under names such as Autosuture, Kendall, Mallinckrodt, Puritan Bennett and Syneture.
If you look at Tyco International, he adds, their management team has done a terrific job of bringing credibility back to the company. For us, this was more about our future as a stand-alone company.
Yet some observers wonder whether officials at Tyco Healthcare, which will remain a party to numerous lawsuits against its parent even after the name change, simply wanted to erase as much of the stain as it could by adopting a new name. Of course, the creation of a new identity is not unusual in corporate America or the healthcare industry. Among the most notable examples: Seven years ago, Columbia/HCA Healthcare Corp. morphed into HCA-The Healthcare Co., just weeks after settling a federal fraud case that amounted to about $840 million. The name later was shortened to HCA.
Michael Watras, president and CEO of Straightline International, a consulting company hired by HCA to oversee the hospital systems branding campaign, says it appears that Tyco Healthcare changed its name as a way to create a new look, a new image so people will forget they had any connection whatsoever to Tyco. Lets face it: When companies are in crisisand HCA was in crisisthey just want to create something different.
In 2001, roughly a year after HCA made its transformation, Vencor, a nursing home company that was forced to reimburse the federal government about $90 million for Medicare overpayments, changed its name to Kindred Healthcare. A year later, PhyCor, a physician practice-management company that went bankrupt in early 2002, listing liabilities of nearly $339 million, was reborn as Aveta Health. Outside of the healthcare industry, notable name changes include the Altria Group, which in January 2003, shed the cloud of tobacco that clung to its former name as Philip Morris Cos.
Unlike Altria, whose Marlboro brand is the worlds most-popular cigarette, Tyco Healthcare and its several brands dont have a lot of consumer awareness; the company and its many products are best-known to hospital workers and purchasers. So its likely that the reputation of its products and services has withstood the public humiliation of its parent.
A lot of times, when its not a consumer brand name, its all based on relationships that are more sales-oriented, says Barbara Kahn, a marketing expert who is vice dean of the undergraduate division of the Wharton School at the University of Pennsylvania, speaking about general branding issues.
Covidien doesnt actually mean anythingit was computer-generated and chosen after a nearly nine-month-long process that included a worldwide evaluation to ensure the name wouldnt unintentionally offend any potential customers. Selected for its global meaning, it was chosen over more than 6,000 other candidates, Kraus says, and is supposed to suggest a feeling of togetherness and collaboration (as in the prefix co-) along with a sense of life and renewal (based on vida, the Latin word for life).
Richard Meelia, Tyco Healthcares president and CEO, said in a statement that Covidien is an expression of our role as a leader in the healthcare industry and marks the start of an exciting new chapter for us.
Strangely, Tyco officials were tight-lipped about the names that made the list of about 40 finalists. The only names of finalists released by Tyco were Aquient, Evendra and Vancian.
About 20 names were vetted during worldwide trademark searches in more than 90 countries and 30 languages to ensure that we could find a name we could own that was acceptable to those who were not native English speakers, Kraus says.
The last thing we wanted to do was develop a name that meant something negative or couldnt be pronounced, he says. We wanted to make sure that the name we were going to choose was something that was acceptable here and abroad. We have one chance to do this, and we wanted to make sure we did it correctly.
Of course, he notes, much of the process is subjective because the name did not exist before it was churned out by a computer.
The name change was telegraphed about two months ago, when Tyco International, headquartered in Pembroke, Bermuda, announced plans to spin off its electronics and healthcare divisions as a way to provide increased flexibility to invest in innovation and organic growth. Of the three publicly traded divisions, only the healthcare division was renamed.
Based on its balance sheet alone, Tycos healthcare division has not been seriously affected by the scandal centered on its disgraced former CEO, Dennis Kozlowski, who created the giant conglomerate and oversaw its collapse.
Convicted in June 2005 of misappropriation of corporate funds, among other charges, the high-living Kozlowski is infamous for his many extravagances, most of them purchased with Tyco money, including the legendary $6,000 shower curtain that graced one of the bathrooms of a $30 million New York City apartment provided by the company.
Still, operating profits in the healthcare division, which Kraus says provides products to about 95% of the worlds hospitals, have remained essentially flat in recent years, slipping 6.8% to $2.2 billion in fiscal 2006 from $2.36 billion in fiscal 2004. The division generated $9.6 billion in net revenue in 2006, up 5.5% from
$9.1 billion in 2004.
Steven Sears, an editor at Barrons who writes a weekly column for Smart Money.com titled The Contrarian, says he doesnt think there is any financial reason to break up the $41 billion Tyco conglomerate other than separating the company from past issues that attracted unfavorable publicity.
I dont know how many years have to pass before (a name change) is deemed successful, he says, but the one thing (Wall Street) likes to see is for companies to be profitable. Theres a saying in the stock market that a bull market covers up many sins. The Street is fairly simple to pleaseas long as companies are profitable and continue to deliver consistent earnings growth.
Watras, the branding expert, says its likely that Tycos new nameand its fresh identitywill eventually help it to expunge any negative images now associated with its parent.
I dont know that it was a good move, he says. It was probably the only move. I dont think they had a choice. I think they had a very good reason to separate themselves from Tyco, and that is this: Why take a gamble? Why risk having people confuse you with Tyco? Why carry that kind of baggage?