Struggling Motorola to split phone, network businesses
NEW YORK - Motorola Inc. plans to split into two companies next year amid pressure from billionaire investor Carl Icahn to break off the money-losing mobile phone business that it pioneered 25 years ago.
One company will focus on handsets and the other will sell network equipment, cable TV set-top boxes, and two-way radios - businesses that are profitable and growing faster. The board is looking for a new chief executive for the phone business, Motorola said yesterday.
The decision buys time for chief executive Greg Brown to revitalize the handset unit before the split. Icahn has said the division is undervalued and demanded that it be separated with new management. Motorola shares have fallen 55 percent in the past two years as customers defected to phones from Apple Inc. and Nokia Oyj.
"If they had been forced to sell it off, shareholders would have been forced to accept a bargain basement price," said Richard Windsor, a Nomura International analyst in London who recommends holding on to the stock. The move is "the one that makes the most sense for shareholders."
Motorola, based in Schaumburg, Ill., said it wants the split to be a tax-free way for investors to hold shares in two publicly traded companies.
"This is the course of action that we feel best about," Brown, 47, said in an interview. He said the plan will create "significant" shareholder value.
Motorola rose 26 cents to $10.02 in New York Stock Exchange composite trading. This year, the stock has traded at its lowest level in more than four years.
Motorola lost market share last year after failing to repeat the success of its Razr, which created the category of slim phones in 2004. The device, which initially sold for $500, lost its cachet and is now free with some calling plans. While all its main rivals boosted sales in the fourth quarter, Motorola's phone shipments plunged 38 percent.
Icahn, who owns about 6 percent of Motorola's stock and is the number two investor, sued the company this week, demanding documents detailing the strategy for the mobile business. He has nominated four directors for election to the board at Motorola's May 5 annual meeting. Icahn didn't return a call yesterday.
The breakup will accelerate a recovery in the handset business and provide "clarity of direction" for customers and employees, Brown said on a conference call. The company said on Jan. 31 that it would consider splitting off the unit.
Motorola's handset business will probably have a value of $1.69 a share next year, while the other divisions could be worth $7.49, Merrill Lynch & Co. analyst Tal Liani in New York said yesterday in a note to clients. Brown wouldn't comment on the potential market value of the phone unit.
Brown declined to comment on the effect of the split on earnings or what will happen to the Motorola brand name.
"Each company would benefit from improved flexibility, a capital structure more tailored to its individual business needs and increased management focus," said Brown, who took over after Ed Zander stepped down at the start of the year. Brown said that he and chief financial officer Paul Liska will stay with the network equipment business.
The handset business lost $388 million last quarter. The networks and set-top box unit had a profit of $192 million on 11 percent sales growth, while the unit making radios and scanners had a profit of $451 million and a 35 percent revenue increase.
