Motorola is banking on a plan to separate its foundering cellphone unit from the rest of the company, yet analysts are mixed on whether...
CHICAGO — Motorola is banking on a plan to separate its foundering cellphone unit from the rest of the company, yet analysts are mixed on whether the gamble will actually yield big dividends.
The plan to split the company in two, announced Wednesday, comes after months of speculation, shareholder pressure and hand-wringing.
Motorola’s TV set-top box and modem business and a unit that sells computing and communications equipment would remain under the stewardship of Chief Executive Greg Brown.
A search is under way for a new CEO for the handset business who will focus on regaining the favor of customers and Wall Street.
Most Read Business Stories
- REI picks new satellite office ‘surrounded by trail networks’
- Judge upholds Seattle eviction regulations, rebuffing landlords' lawsuit
- Fry's Electronics executive accused of embezzling $65 million
- Funky electronics chain Fry's is no more
- Alaska Airlines ordered to pay $3.2M to family of woman who died after escalator fall
“The news that has been coming out of Motorola for the past many years has been lousy,” said Jeff Kagan, an independent telecom analyst. “This could be the scent of a new company forming, and the question is, will the new company act and perform differently and better? We don’t know yet.”
Executives hope the tax-free split, which they expect to complete next year, will quicken the turnaround of Motorola’s handset business.
“The creation of the two independent, publicly traded companies provides improved management focus and a capital structure that is more tailored to the individual business needs,” Brown said. “And I think it will provide some improved alignment and agility and competitive effectiveness and will help us going forward.”
But the deal is already raising questions as investors debate whether it will revive the once-iconic brand amid increasingly tough competition.
“We’re not convinced splitting the organization ultimately enhances shareholder value, but at least the beleaguered company is trying different things,” RBC Capital Markets analyst Mark Sue said.
Wednesday’s move seemed all but inevitable for Schaumburg, Ill.-based Motorola — which pioneered the world’s first cellphone decades ago — as it gears up for a second straight year of proxy fights with activist financier Carl Icahn.
Icahn, who lost his proxy bid last year, is pushing a slate of four candidates for the board, individuals he hopes will revitalize Motorola’s cellphone business — and stock price.
Motorola’s wildly popular Razr became a must-have for trend-conscious shoppers about two years ago, and its headaches began when the Razr fell out of favor in late 2006 and the company didn’t offer a successful second act.
A flock of executives — including CEO Ed Zander — departed the company as it cut thousands of jobs and pulled back from developing markets.
Then Icahn — who holds 142.4 million shares, or 6.3 percent of the company’s stock — filed a lawsuit this week demanding access to documents about its executives and its cellphone business.
Icahn called Wednesday’s announcement “much delayed and long overdue” and continued to push for the election of his four board members. In a statement released late Wednesday, he also said Motorola had moved too slowly.
“As one of the largest Motorola stockholders, 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,” he said. “Time is of the essence, and decisive action is required to reposition the mobile-devices business for success as an independent company.”
Brown said the company hadn’t determined whether one company or both would retain the Motorola brand name or whether shareholders would receive a distribution of stock from the cellphone company or Motorola’s other segment.
So far, investor opinion seems mixed.
“The ultimate outcome should be two companies better focused on their core competencies and we view this as good news,” Deutsche Bank analyst Brian Modoff wrote in a research note to investors.
Wachovia’s David Wong argued instead that much of Motorola’s long-term value lies within the potential for its cellphone division to recover — and not in areas where long-term growth is likely to be slower.
“We are skeptical as to whether separating the mobile-devices business will improve the pace of recovery in this division,” he wrote to investors. “We believe that the eventual recovery of the handset business could best be achieved by the handset division remaining associated with the other, stable and profitable, business lines.”
Motorola shares climbed 26 cents, or 2.7 percent, to close at $10.02 Wednesday.