Motorola Renews Itself Through Spinoff

http://www.forbes.com/markets/economy/2008/03/26/motorola-restructuring-update-markets-equity-cx_vr_0326markets16.html

Motorola Renews Itself Through Spinoff
Vidya Ram, 03.26.08

LONDON - Motorola has taken heed of pressure from shareholders including billionaire Carl Icahn, and announced it will spin off its mobile handset business.

Motorola shares rose 1.5%, or 15 cents, to $9.91, on Wednesday morning, after a pre-opening rally of over 9.0%.

The changes will be made in 2009, under which two publicly-listed companies will be created, one focusing on mobile phones and the other bringing together Motorola's home and networks business, which sells TV set-top boxes and modems, and its enterprise mobility unit, which sells computing and communications equipment for businesses.

Motorola expects the transaction will be tax-free, allowing shareholders to own stock in both the new companies

Nomura analyst Richard Windsor said this represented the best deal for shareholders. "It is the least disruptive remedy to their recovery plan for their mobile phone division," he added.

He said the company would have struggled to get a good price if it had chosen to sell its mobile handset division, which has suffered from a slump in sales thanks to stiff competition from the likes of Nokia and Sony Ericsson.

"Our decision to separate our Mobile Devices and Broadband & Mobility Solutions businesses follows a review process undertaken by our management team and board of directors, together with independent advisors," Chief Executive Greg Brown said in a press release.

"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."

Motorola launched a strategic review in January, following a weak set of fourth-quarter earnings that were weighed down by troubles at its handset business, which has failed to repeat the success of its Razr phone.

Just ahead of the announcement, UBS analyst Maynard Um cut his estimates for sales of Motorola handsets for 2008, by 9.0%, to 146.5 million, despite Motorola's plans to launch several new 3G phones and low-cost handsets targeted at emerging markets.

Icahn had pressed for the spin off and for the appointment of a new chief executive for the division, arguing that the company functioned as a conglomerate, and a carving off the handset unit was in the best interests of shareholders. (See: "Icahn Rattles Motorola")

Thomson Financial contributed to this report.