UPDATE 5-Tyco to split into three companies, shares rise

* Commercial fire and security company will be largest

* Stand-alone companies could be takeover targets

* Sees one-time transaction costs of about $700 mln

* Expects to complete separation in about 12 months

* Shares up 3.7 percent (Adds analyst and investor comment, byline; updates share movement)

By Nick Zieminski

Sept 19 (Reuters) - Diversified U.S. manufacturer Tyco International (TYC.N) is moving to separate its businesses into three independent publicly traded companies, sending its shares up nearly 4 percent.

Investors cheered the move on Monday amid speculation that smaller chunks of Tyco would become acquisition targets.

Consumer companies Kraft Foods Inc (KFT.N) and Ralcorp Holdings (RAH.N), credit rating agency owner and book publisher McGraw-Hill (MHP.N), and energy giant ConocoPhillips (COP.N) have announced plans to split their business as conglomerates are falling out of favor with investors. Also, ITT Corp (ITT.N) is planning to spin its defense and water segments into separate companies.

Tyco said the split would allow its three businesses -- ADT North America residential security, flow control products and services, and its fire and security business -- to have more options for growth, both from within and through acquisitions.

For a factbox on the three businesses, see [ID:nL3E7KJ26H]

Tyco's Swiss incorporation makes a break-up more tax-efficient than a sale, said analyst Jeff Sprague of Vertical Research Partners, but the individual pieces could be attractive to a long list of acquirers.

"We see all three pieces as possible takeover candidates," Sprague said.

The ADT business could be attractive to AT&T (T.N), Verizon (VZ.N), Comcast (CMCSA.O), Stanley Black & Decker (SWK.N) or to a private equity buyer, Sprague said.

Possible buyers for the commercial fire and security business include France's Schneider Electric (SCHN.PA), Germany's Siemens (SIEGn.DE) and U.S.-based United Technologies (UTX.N), Honeywell International (HON.N) and Johnson Controls (JCI.N), Sprague speculated.

United Tech or General Electric (GE.N) could be interested in the valves business, he said. That unit could also merge with ITT's flow unit, Flowserve (FLS.N) or Swiss-based Sulzer AG (SUN.S).

Tyco expects to complete the transaction in about 12 months, with transaction costs at about $700 million, mainly for debt refinancing, separation and restructuring.

"They got out ahead of the curve," billionaire investor Nelson Peltz of Trian Fund Management said on CNBC television. "One or two of those companies might be an acquisition target. When boards do that, I congratulate them. They're putting shareholders first."

TRANSFORMING TYCO

The break-up is the latest step in the nearly decade-long transformation of a diffuse conglomerate under Chief Executive Officer Ed Breen. He first broke up the company in 2007, then greatly expanded its security business via its $1.9 billion acquisition of Broadview Security in 2010.

The ADT North America residential business, which provides security and fire alarm systems in North America to more than 6 million homes and small businesses, will have an annual revenue of about $3 billion and 16,000 employees.

Plans call for it to be incorporated in the United States. Naren Gursahaney, president of the security solutions segment, will become chief executive.

The flow control business, with annual revenue of about $4 billion and 15,000 employees, will be headed by Patrick Decker, who is now president of that segment.

Tyco expects the segment, which sells valves and controls for the energy and other markets, to be incorporated outside the United States.

The company will combine the remaining commercial security business with the fire protection segment to form the largest new company, with annual revenue of $10 billion and 69,000 employees. Breen may be nonexecutive chairman of this business, while taking supporting roles at the others.

Tyco's commercial fire protection business sells fire detection and suppression systems, while the security business serves commercial, industrial and governmental customers. The president of Tyco's fire protection unit, George Oliver, will become the CEO of commercial fire and security.

In 2007, Tyco spun off its electronics division, now called TE Connectivity (TEL.N), and the healthcare company now named Covidien (COV.N).

Tyco also recently sold a majority stake in its electrical and metal products business to private equity firm Clayton Dubilier & Rice LLC, reversing plans for a spinoff of the division.

Shares of Tyco were up 3.7 percent at $45.33 in morning trading. (Reporting by Nick Zieminski in New York; Additional reporting by Megha Mandavia and Jochelle Mendonca in Bangalore; Editing by Viraj Nair, Maju Samuel, Lisa Von Ahn)