Motorola to split company in two
Motorola Inc. bowed to pressure from investors Wednesday, announcing a plan to split its struggling cellphone business from other operations to form two publicly traded companies.
The widely expected deal comes as the suburban Chicago-based communications technology firm faces a second straight year of agitation from billionaire investor Carl Icahn, who has become increasingly frustrated with Motorola’s eroding phone sales.
Executives said the move would allow the two firms to better focus on their strengths and weaknesses while accelerating the turnaround plan for the cellphone unit, whose fortunes slipped after trend-conscious customers lost interest in the Razr flip phone.
“The creation of the two independent publicly traded companies provides improved management focus and a capital structure that’s more tailored to the individual business needs,” said Chief Executive Greg Brown, who will remain at the helm of the non-cellphone unit. “And it will provide some improved alignment and agility and will help us going forward.”
But Icahn said he wanted the company to split off its mobile-phone business more quickly than planned.
“I continue to have concerns about the speed and manner in which a new management team is selected for the mobile devices business and the separation transaction is consummated,” Icahn said in a letter to Motorola’s board.
Specifics of the deal haven’t been disclosed, but Motorola said its handset business would operate separately from another company offering TV set-top boxes and modems and computing and communications equipment.
Motorola said it anticipated that the transaction would be tax-free, allowing shareholders to own stock in both new companies. If the deal is approved by regulators, the units will be separated in 2009.
Executives haven’t said whether one company or both would retain the Motorola brand name or which company would distribute stock to existing shareholders.
Many other questions remain about the plan, the success of which may take years to measure. But analysts said it probably meant that a widely anticipated sale of the cellphone unit was on hold.
“We’re not convinced splitting the organization ultimately enhances shareholder value, but at least the beleaguered company is trying different things,” said RBC Capital Markets analyst Mark Sue.
Some on Wall Street saw the split more favorably and said it would help fix the cellphone unit, which accounted for $19 billion in revenue last year. Motorola’s other businesses brought in about $18 billion.
“We view this as a clear positive, as it will make it easier for Motorola’s mobile devices business to attract talent and execute its turnaround,” Morgan Keegan & Co. analyst Tavis McCourt told investors.
