Motorola Inc. plans to divest its interests in more than a dozen international wireless operators to free itself from potential conflicts with customers.
The new wholly owned subsidiary, Propel Inc., filed a registration statement with the Securities and Exchange Commission last week for an initial public offering of up to 20 percent of Propel’s common stock. Within the next year, Motorola will divest its entire interest in Propel by either spinning off the company, exchanging Motorola shares or a combination of both, according to Propel’s SEC filing. Propel declined to comment, citing the quiet period rule.
“We believe that this offering and our separation from Motorola will enhance our ability to pursue our business strategy free of conflicting business objectives of Motorola, allow us to better [incent] our management team, improve our capital financing flexibility and simplify our internal structure,” said Propel’s prospectus.
Motorola began 15 years ago acquiring stakes in operating companies in Latin America, Europe/Middle East and Asia in exchange for the carriers’ commitments to buy its equipment. Today, the vendor is having trouble selling its network infrastructure to its operating companies’ competitors. Motorola also increasingly finds itself competing against many of its own customers for wireless licenses.
Propel’s separation from Motorola will allow the company to aggressively purchase new licenses and increase its ownership stakes in its existing companies.
“In particular, we will initially target Latin America, the Middle East/North Africa and China,” said Propel’s SEC filing. “As opportunities arise, we may also increase our ownership in our existing operating companies by acquiring the interests of their other shareholders.”
Propel plans to use proceeds from the offering to fund ongoing operations, make acquisitions, expand its operating companies, repay a small portion of debt to Motorola and fund general corporate purposes.
Michael Norris, the Motorola executive currently overseeing Motorola’s investments, will be president, chief executive officer and director of Propel.
Qualcomm Inc. in 1998 spun off its international wireless assets to eliminate potential conflicts with other Qualcomm customers and keep the start-up costs associated with the new licenses from affecting the company. Qualcomm’s strategy had been to expand Code Division Multiple Access technology worldwide by entering strategic alliances with domestic and international emerging wireless telecom operating companies.
In recent months, however, the Qualcomm spinoff, Leap Wireless International Inc., has found a more profitable business in selling off its international wireless properties. Most recently it sold its Chilean operator, Smartcom PCS, to Spanish utility company Endesa S.A. for $300 million. Leap had less than $100 million in equity in Smartcom plus $80 million in company debt that was returned.
The prices of international licenses have gone up dramatically, noted Leap Chairman and CEO Harvey White during the company’s recent quarterly conference call.
“When you see what licenses are selling for now, it causes you to wonder how well those people are going to do in shareholder returns,” he said.
