Motorola to spin off mobile division
Thursday 27 March 2008
Motorola is spinning off its loss-making mobile phone division in a move calculated to appease fractious shareholders.
The transaction, which is not expected to take place until 2009, will create two standalone companies – one comprised of the enterprise networks and public safety businesses, the other the mobile devices unit.
Motorola has come under significant pressure from shareholders, in particular the billionaire investor Carl Icahn, to re-evaluate its mobile strategy after losses of $388m (£194m) in the division's fourth quarter, and $138m in the third.
Yesterday's announcement came just days after Mr Icahn, who owns 6.3 per cent of Motorola stock, launched legal proceedings demanding internal documents as part of a proxy battle for four board seats.
Greg Brown, the Motorola chief executive, refused to be drawn on the impact of Mr Icahn's calls for a spin-off, though he confirmed that the investor has turned down a compromise offer of two board seats.
"The company's management, board and strategy advisors set on this path of action as that with the best value for shareholders," Mr Brown told analysts. "Creation of two independent publicly-traded companies provides improved management focus and capital structures more tailored to individual business needs."
The recovery of the mobile phone division's performance is not the main motivation. "The reason for the deal is the significant valuation discrepancy between the share price and sum of parts," Richard Windsor, a global telecoms analyst at Nomura, said. "Looking at the non-mobile business in isolation can produce valuations not far from $18 a share, about 80 per cent higher than it is now."
Motorola's stock price has remained level because of the long lead time and unanswered questions about how cash, debt, intellectual property and brand equity will be divided. "If it was going ahead tomorrow, it would be a raging 'buy', but by the time it happens the outlooks may be totally different," Mr Windsor said.
Motorola is the second largest mobile manufacturer, with 14 per cent of last year's market compared with Nokia's 40 per cent. Its problems stem from a reluctance to invest in next-generation handsets, says Anssi Vanjoki, an executive vice president at Nokia.
"Motorola did not build the necessary software competence to move beyond traditional phones," he said.
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