UPDATE 4-Motorola to split into two companies in 2009

(Adds Icahn and analyst comments, background)

By Sinead Carew

NEW YORK, March 26 (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.