Carl Icahn is gaining support from Motorola Inc. shareholders, increasing the likelihood the activist investor will land a seat on the company’s board next week.
Despite CEO Edward Zander’s recent lobbying of large investors, some say they welcome Icahn’s influence at Motorola, which posted a loss for the first three months of this year on plunging cellphone sales. Shares of the company have dropped almost a third since October, when it began missing profit targets.
“We don’t see what the downside is to Carl Icahn joining that board,” said David Chalupnik, senior managing director for U.S. Bancorp’s FAF Advisors in Minneapolis. The firm plans to vote its 9.4 million shares in favor of Icahn, he said.
The showdown culminates May 7 at Motorola’s annual meeting, with the Queens-reared Icahn battling the Brooklyn-born Zander. Icahn, 71, will step up pressure on Zander to fix the company’s problems, prod Motorola’s board to be more active and force management changes at upper levels, a Motorola investor said.
“He’s got to get under the hood,” said John Krause, senior equity research analyst at Thrivent Asset Management in Appleton, Wis. “He’ll try to drive more efficient operations, take some costs out and limit acquisitions in non-key areas.”
Krause, who met with Icahn’s representatives recently, declines to say how Thrivent is going to vote its 390,000 Motorola shares. But he adds: “It would be positive if he is on the board.”
Icahn’s campaign got a boost last week when Institutional Shareholder Services (ISS), which advises big investors on board elections and other proxy fights, endorsed him. ISS made its recommendation to big Motorola investors like U.S. Bancorp and mutual fund manager T. Rowe Price Associates, which holds 16 million Motorola shares. T. Rowe Price normally follows ISS’ advice, “but we exercise some flexibility around their recommendations,” said Thomas Huber, a vice-president and fund manager. He declined to say how the firm will vote.
Likewise, Brad Williams, fund manager for MTB Investment Advisers Inc. in Baltimore, generally goes with the ISS nod.
“We tend to follow their recommendation unless there’s a compelling reason to do otherwise,” said Williams, whose firm holds about 300,000 Motorola shares.
No shareholders have told the company how they’re going to vote, a Motorola spokesman said. Zander declined to comment, and Icahn didn’t return phone calls.
If investors do elect Icahn, it will mark a decisive change in their attitude since he began buying shares earlier this year. (In January, Icahn disclosed that he had taken a stake and subsequently increased it to 69 million shares, or 2.9 percent of the company.) Initially, some investors said they were skeptical that he could bring about positive change. But that was before the company reported an unexpected first-quarter loss. In its report last week, ISS noted double-digit annual returns at companies like Time Warner Inc. and Federated Department Stores Inc. since Icahn took stakes in those companies.
Not everyone is sticking around to see whether he can do the same for Motorola.
“He doesn’t necessarily have the right touch on everything,” said Howard Ward, fund manager for Rye, N.Y.-based Gabelli Funds LLC. Ward sold the 230,000 Motorola shares held in Gabelli’s Gamco Growth Fund in the first quarter. “I’m not sure he made the right bet. This is such an incredibly vicious business. He’s really got his work cut out for him.”
Steven R. Strahler is a reporter for Crain’s Chicago Business, a sister publication of RCR Wireless News. Both publications are owned by Crain Communications Inc.
