Motorola to split into two companies in 2009

NEW YORK Wed Mar 26, 2008 5:51pm EDT

Chief Executive Officer of Motorola Edward Zander gestures during a conference at the 3GSM World Congress in Barcelona, Spain February 15, 2006. REUTERS/Albert Gea

Chief Executive Officer of Motorola Edward Zander gestures during a conference at the 3GSM World Congress in Barcelona, Spain February 15, 2006.

Credit: Reuters/Albert Gea

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NEW YORK (Reuters) - Motorola Inc MOT.N said on Wednesday it would split into two publicly traded entities in 2009, indicating that it had no quick fix in sight for its money-losing handset division.

Motorola, which gave into demands by activist investor Carl Icahn, saw its shares rise 26 cents to $10.02. Analysts worried about another year of disappointment from Motorola, which is losing market share to rivals Nokia (NOK1V.HE) and Samsung Electronics (005930.KS).

"It could be 18 months before it happens, by which time the outlook for either of the businesses could be completely different," said London-based Nomura analyst Richard Windsor, who had hoped such a deal could be done this year.

Icahn said Wednesday afternoon he would still pursue his proxy battle with Motorola unless it agreed to have Keith Meister, chairman of Icahn Enterprises and manager of Icahn's $8 billion fund, on the board. He said the break-up was overdue and questioned why it would not be accomplished until 2009.

Motorola plans to create two publicly traded companies, separating its mobile phone unit from the rest of the business, which makes television set-top boxes and network equipment.

Some analysts see the split helping Motorola negotiate a joint venture or a sale for the cell phone business, but others fear that its top talent could leave amid the uncertainty.

"Folks know its going to take a while and the next couple of quarters is going to be tough," said American Technology Research analyst Mark McKechnie, who values the mobile devices business at about $2 a share or $4 billion, based on Motorola's current share price. Motorola stock briefly rose as much as 5 percent to $10.30 early Wednesday before giving back most of the gains.

The decision follows a loss in market value of 60 percent to about $22 billion in just over a year.

SEPARATE AND SELL?

No buyers have emerged for the cell-phone unit since Motorola announced a strategic review in late January.

But spinning it off could help Motorola find a strategic investor, such as a Chinese or Japanese handset maker keen to win a bigger share of the U.S. market.

"I suspect it's a prelude for a joint venture for the mobile devices business," said Avian Securities analyst Tero Kuittinen. "It's positive news because it shows the company is moving toward a serious restructuring."

Motorola, ranked third in the global handset market, said the split would take the form of a tax-free distribution to its shareholders and it expected to spend several months working out the details of the breakup.

The company, which has had multiple management changes in the last year, said splitting could help attract better leadership for its mobile devices business.

"We expect this action to enhance recovery in mobile devices and accelerate efforts to attract a new leader," Chief Executive Greg Brown said on a conference call with analysts.

But Deutsche Bank analyst Brian Modoff said rivals could take the opportunity to swipe the company's top engineers and managers.

"They will be potentially poachable," he said, particularly as the company gave minimal details about the spin off.

Motorola CEO Brown did not say how he would split the company's 66,000 employees between the businesses.

Nor did he give details on the new capital structures or how shares would be allocated to existing shareholders, telling Reuters that these details would be worked out in the coming months. Some analysts said the separation could hurt bond holders.

Brown also did not give details on the branding strategies beyond saying the Motorola brand is important for the mobile devices business. Analysts said that if it is to survive, the handset unit needs to retain the Motorola brand.

Motorola has suffered sharp losses in market share for more than a year amid criticism for failing to come up with a strong successor to the once-lauded Razr phone.

Brown would not comment on Motorola's financial outlook beyond repeating his earlier statements that 2008 would be a difficult year for mobile devices.

Some analysts lowered their already weak estimates for Motorola's handset sales. UBS analyst Maynard Um cut his 2008 estimate to 130.2 million units from 145.6 million.

Icahn, Motorola's second-biggest shareholder, with more than a 6 percent stake, is also suing Motorola to force it to hand over documents related to its mobile devices business.

Motorola said on Wednesday the planned split is subject to further financial, tax and legal analysis.

(Additional reporting by Tiffany Wu in New York and Terhi Kinnunen in Helsinki; editing by Richard Chang)

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