RPT-UPDATE 5-Icahn sues Motorola for access to documents

Tue Mar 25, 2008 9:23am EDT

(Repeating March 24 story with no change to headline or text) (Adds Icahn interview)

By Sinead Carew and Robert MacMillan

NEW YORK, March 24 (Reuters) - Activist investor Carl Icahn said on Monday he is suing Motorola Inc MOT.N to force it to hand over documents related to its money-losing mobile devices business to determine if its board failed in its duties.

The actions come after Icahn rejected an offer by Motorola to support two of his four board nominees, according to the Wall Street Journal Online, which cited an Icahn interview.

Icahn, Motorola's second-biggest shareholder, is engaged in a proxy battle with the company, proposing a slate of four directors to the board of the No. 3 phone maker, which has seen its market share plummet in the last year.

In a Reuters interview, Icahn declined to confirm the Journal story except to say that he would not be satisfied unless Keith Meister, chief executive of Icahn Enterprises and manager of Icahn's $8 billion fund, became a director.

The Journal quoted Icahn as saying Motorola had rejected Meister.

"We're not interested unless Meister is on there," Icahn told Reuters, saying that it was important to have a large Motorola shareholder on its board.

"Anything short of that is something we think will not work, and the company will have the same problems it had last year. You need someone on that board that's going to spend a great deal of time making sure the restructuring happens."

The mobile phone maker said earlier this year it is looking at its options, including a separation of its mobile devices business, after pressure from Icahn for such a move.

Motorola said it rejected Icahn's request for "extensive access" to its books, but said it offered the investor access to information about the company under a confidentiality agreement, but Icahn had declined the offer.

The Icahn Group said it filed a lawsuit in Delaware Chancery Court on Monday, seeking documents on Motorola's mobile devices business, including details on board discussions about the potential spinoff and the unit's performance.

"We demanded these materials for the purposes of enabling us to investigate whether and to what extent the board of directors of Motorola failed in their duties as directors," Icahn said in a letter to Motorola shareholders.

Icahn also asked for documents, if any, showing the use of Motorola's aircraft and property by senior management, the board of directors and their families. Icahn holds about 6.3 percent of Motorola, according to March 5 data.

He also questioned whether Greg Brown, recently appointed as chief executive, was qualified to do the job after more than a year of missteps by his predecessors.

In an e-mailed statement Motorola said Icahn had not laid out "a proper purpose" to give him inspection rights of its books under Delaware law.

COMPROMISES REJECTED

Motorola also accused Icahn, who has promised to share any information he receives with other stockholders, of seeking "to create further unnecessary distraction," as it had offered confidential access to its data.

Motorola, which had previously urged shareholders to support its director slate instead of Icahn's candidates, declined comment on whether it had offered to support two Icahn nominees.

Motorola shares closed up nearly 5 percent at $9.69 on the New York Stock Exchange. Its shares have lost 63 percent of their value since mid-October 2006, when investors started to become disillusioned with its results.

Icahn said in the complaint filed in Delaware that he and his affiliates had spent more than $2 billion for over 144 million Motorola shares, implying a loss in value of about 30 percent for the investment.

SHAREHOLDER SYMPATHY?

Motorola, which has said it faces a challenging 2008, has been losing to rivals such as industry leader Nokia (NOK1V.HE) and No. 2-ranked Samsung Electronics Co Ltd (005930.KS) in the last year amid criticism of its cell phone line-up and failure to produce a strong successor to the once-lauded Razr phone.

Charter Equity Research analyst Ed Snyder said Icahn, who failed to win a Motorola board seat last year, was likely looking for information that would help him win shareholder support ahead of the annual meeting, set for May 5.

Snyder expects shareholders to be more open to Icahn at this year's director election.

Icahn told Reuters that other shareholders angry at management had contacted him but declined to handicap chances at the annual meeting, saying it was too early.

Motorola has also reshuffled its top management, recently appointing a new chief executive and chief financial officer.

Icahn accused the company's board and its management team, previously led by Ed Zander who stepped down as CEO in January, of failing to assess the business properly in the last year.

Along with Meister, Icahn's director slate includes Frank Biondi, who had helped Icahn in a previous proxy battle, William Hambrecht and Lionel Kimerling. (Editing by Tim Dobbyn/Andre Grenon/Gary Hill)