UPDATE: Motorola Plans to Split in Two; Icahn Said Not a Factor in Move
SAN FRANCISCO (Dow Jones) -- Motorola announced plans Wednesday to split into two companies, culminating months of speculation that the company would seek to separate its ailing wireless-handset division from the rest of the business.
Motorola's board of directors approved a plan to break into two independent, publicly traded entities. One company will focus on its mobile-devices business and the other will specialize in broadband and mobility solutions, which includes the company's public safety business.
The transaction is expected to take place in 2009, according to Schaumburg, Ill.-based Motorola.
Motorola's handset business has come under intense scrutiny over the last year as the company has failed to introduce compelling devices in the wake of its mega-popular Razr line.
It's also faced fierce competitive pressure from rival handset makers such as Nokia, Sony Ericsson and South Korea's Samsung and LG, as well as companies such as Research In Motion and Apple that make high-end smart phones quickly growing popular as alternatives to regular cell-phone devices.
"Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus -- as well as more targeted investment opportunities for our shareholders," said Motorola CEO Greg Brown in a statement.
Shares of Motorola were up 1% at $9.86 in morning trading. The stock's lost more than half its value in the last six months.
Icahn not a factor, Motorola says
Based on current plans, the creation of the two stand-alone businesses is expected to take the form of a tax-free distribution to Motorola shareholders, subject to further financial, tax and legal analysis.
On a conference call with analysts, Brown said the decision resulted from an evaluation process announced Jan. 31, not from pressure from major shareholder Carl Icahn.
Motorola came under Icahn's scrutiny last year after a sharp drop in handset sales began to eat into its profits and punished the stock price. Icahn began buying up shares and waged a proxy battle for a seat on the board of directors at the company's annual meeting last May.
This year, the billionaire activist investor has nominated a slate of four directors. He also sued the company this week for access to records that he claims could shed light on the company's failure to revive its handset business.
Motorola offered Icahn two board seats, but he rejected the proposal, said Brown, who declined to speculate on a question over whether the billionaire would win four board seats in May.
A call by MarketWatch to Icahn's New York office was not returned.
Revitalizing handset business
As part of its efforts to revitalize the handset business, Motorola is planning to recruit a new CEO who would be in charge of the division, Brown said.
It's unclear what will become of the Motorola brand. Brown said the company recognizes the value of its name in mobile devices and is studying its brand strategy as part of the spin-off.
"Obviously, the Motorola brand is strong and it's trusted and it's proven, and it is obviously valuable to mobile devices as well as other assets and parts of the business," Brown said on the conference call. "So, I think as we undertake a coherent brand strategy, it's important to the success of many of our businesses, and we'll formulate and refine that in the next several months."
Many analysts believe the Motorola name should stay with the handset unit, as its one of the few valuable assets the business has at present.
In a note to clients Wednesday, Deutsche Bank analyst Brian Modoff said: "We strongly believe that this needs to stay with the consumer-focused handset unit."
Brown also said the spin-off will help create "clarity" for Motorola's businesses and is intended to fuel a recovery in its wireless-handset business.
On this point, analysts seem to disagree. Skeptics point out that even as its own business, the handset unit still lacks products that can grab consumers' attention and help the company regain market share.
"We're not sure that being separated offers a more nimble organization that can fend off competitors and make good products," said RBC Capital analyst Mark Sue.
"The initial level of excitement here may settle as investors consider the level of disruption that may be caused as the business are split in two," he said in an interview
Analyst Ray Archibold of Kaufman Bros. argues that a Motorola split will force the market to assign a more appropriate value to the handset business, which he says is currently being valued at near to zero. He believes Motorola's other businesses carry a value between $12 and $14 a share, well clear of the stock's current price.
At Cowen & Co., analyst Matt Hoffman says the planned split will help the company put in place a better leadership team to run the handset unit.
"In order to attract the very best talent to run the turnaround, Motorola needs to be able to offer the promise of running an independent company," Hoffman wrote in a note to clients.
(END) Dow Jones Newswires
Posted to the site on 26th March 2008
