Question marks multiply amid Motorola’s plans to split: Company leadership: We’re in control here

Motorola Inc. will split into two publicly traded companies, if it has its way, the company said today.
Under the plan announced this morning, shareholders will receive shares of both companies — one focused solely on mobile devices, the other on home broadband and enterprise mobility solutions.
The move appeared to be designed, in part, to deflect a rising tide of public criticism from activist investor Carl Icahn, who has sought a spun-off devices business, among other demands. Icahn effectively owns 145 million shares, or a 6% stake, in Motorola.
But it is impossible to discern how much Icahn’s influence shaped today’s announcement. Since taking office Jan. 1, CEO Greg Brown has said he would personally lead the device business (dumping former devices chief Stu Reed), that he would make a global search for a new devices leader, and that the company sought a partner for its devices business. Apparently, no such partners were forthcoming, hence today’s news.
Investors appeared cautious on the spin-off news; Motorola’s stock was relatively unchanged in morning trading at around $9.85 per share.
Although the focus was on a solution to Motorola’s ailing handset business, which historically has produced more than half the company’s annual revenue but is currently losing money and market share, a spin-off should bring some luster to the company’s smaller, remaining businesses. The company’s enterprise mobility business, in particular, has seen its annual revenue grow 43% and earnings rise 25% during the past year.
Motorola’s announcement, however, was carefully worded to emphasize that the company’s board has “commenced a process” that is intended to result in two separate companies. But it also said that the separation, “if consummated,” would take place next year. Whether the caveats reflected legal requirements, common sense caution or a real sense of uncertainty is not yet known.
“The company noted,” Motorola’s statement read, “that there can be no assurance that any separation transaction will ultimately occur or, if one does occur, its terms or timing.”
One question certain to be on the minds of shareholders: Will a year-long process of addressing the split, along with the ongoing global search for a chief executive, further delay the financial and market share recovery of the mobile devices business?
And another important question looms: Has Motorola’s leadership effectively retained control over the company’s fate by co-opting one of Icahn’s primary demands, or will today’s news actually lead to a more contentious situation at the annual shareholders’ meeting on May 5?
Both questions are likely to receive much attention in the scant weeks leading to the shareholders meeting.
Icahn’s quest
Icahn — who was rebuffed by shareholders last year in his quest for his own seat on the board — has filed a slate of four candidates for the company’s board. Earlier this week the investor stepped up his criticism of Motorola’s CEO Greg Brown and his board.
Icahn demanded documents that might suggest that Motorola’s board had failed to adequately oversee the company’s management. Motorola’s counsel responded that the demand was “unusually expansive” and lacked a “credible basis.”
But Icahn seemed poised for an ugly fight in coming weeks. He publicly questioned whether Brown was the right person to lead the company and whether board members and their relatives had improperly used company aircraft — an allegation with a heavy whiff of malfeasance, clearly designed to stir shareholder dissatisfaction.
Today, Brown used measured language in the company’s announcement to reaffirm that the company’s current leadership had firm control and faith in its assets.
“Our priorities have not changed with today’s announcement,” Brown said in the company’s prepared statement. We remain committed to improving the performance of our mobile devices business. … We believe strongly in our brand, our people and our intellectual property, and expect that the Mobile Devices business will be well-positioned to regain market leadership as a focused, independent company.”
Also today, Motorola announced six new products designed to deliver what it said would be “higher-performance wireless voice and data services.” The news, designed to pique interest in the company at next week’s CTIA Wireless 2008 conference in Las Vegas, was clearly overshadowed by news of the intended split.
But it is likely that Motorola’s fate — and this new twist — will in fact be avidly discussed at the conference.
The reaction
Responses to the news from market and financial analysts today were swift and varied.
“The real story is that when you’re rich, you can ignore criticism, but when you’re not rich, you feel the pressure,” said Carl Howe, analyst at Yankee Group. “There was pressure from Icahn and there was a need to send a message to shareholders. That message is: ‘We hear you. We’re dealing with it.’ The 2009 date caught my eye, though. The schedule may not please all.”
As for the potentially year-long process, the analyst said: “A wholesale restructuring of your business is not a simple thing.”
Howe added that the intended split-up would afford the mobile devices business a measure of much-needed focus.
“Whenever you try to maximize value, you spin-off a troubled business,” Howe said.
Maynard Um, analyst at UBS, agreed that a better focus on products — which must lead a recovery for Motorola’s handset business — was an upside of a split, as is the attraction or retention of talented personnel. But the move also raises questions whose answers are difficult to discern right now, including how to value the outcome for investors.
“A new CEO could result in a strategy change, which could potentially take more time to implement,” Um wrote in a note to investors this morning. “Although we believe a spin(off) will unlock value, we wait for further clarity to determine how much value will be unlocked.”