FT (dealReporter) on a Moto MD Spin
>> Motorola More Likely to Enter Joint Venture Or Partnership Than Undergo Direct Sale Or Spin-Off Of Handset Unit, Sources Say
Mark Eissman and Sarah Cohen
dealReporter via The Financial Times (London)
February 5 2008
tinyurl.com
Motorola, an Illinois-based maker of communications equipment, is less likely to sell or spinoff its mobile handset unit in a straightforward transaction, industry sources told dealReporter. Sources speculated Motorola would more likely enter into a joint venture or partnership than sell or spinoff the business.
On Thursday, Motorola announced it would explore a realignment of its units “to better equip its mobile devices business to recapture global market leadership.” Motorola stated, “The company’s alternatives may include the separation of mobile devices from its other businesses in order to permit each to grow and better serve its customers.”
A source familiar with the situation said that he did not disagree with the premise that the suburban-Chicago company was more likely to enter a joint venture or partnership, rather than a more traditional spin-off or sale, but said that did not mean a sale ”was off the table.” The source said a question for the NYSE-listed company is: ”if you sell that division, you are selling a very big part of the company and then, what is left?” When asked, the source added that as between a sale and a spin-off, he viewed a spin-off as being considerably more likely.
He said that Motorola’s board thinks that the mobile handset division ”could be better run,” and said that CEO Greg Brown will assume day-to-day control of the unit’s operations. Brown will work with the current head of the unit, Stuart Reed, said the source. Reed’s appointment last year by Brown’s predecessor, Ed Zander, was questioned by some at the time because Reed has been at Motorola for two years and his tenure had been in the suppy chain division
One of the industry sources, a sector CEO, said he thought it was unlikely that Motorola would sell the division, noting that it accounts for roughly half the company’s revenue. “It’s a big part of the overall company, and I think local regulators in Chicago will put pressure on Motorola to keep handsets.” The CEO acknowledged that handsets are difficult for Motorola because they’re becoming commodities, and more in line with consumer electronics than networking equipment. “Handsets are low-margin and cost-sensitive, and Motorola doesn’t have those genetics,” he said.
A top industry executive of a major handset maker, as well as a telecom sector analyst, agreed that Motorola was less likely to sell or spinoff mobile handsets than find a marketing or joint venture partner. The business is losing money, is cash and EBITDA negative, and could not support Motorola’s debt if spun off or running as a separate division, said the analyst. “It’s much less likely that someone would acquire handsets flat-out than would enter into a partnership or joint venture.” The analyst added that he thought a handset divestiture of some kind was likely.
A Motorola spokesperson responded only by saying the company’s press release yesterday “spoke for itself.”
Motorola’s handsets generated sales of USD 4.8bn for its fourth quarter, down 38% compared with the year-ago quarter. Its operating loss was USD 388m, compared with operating earnings of USD 341m in the year-ago quarter. For the full year 2007, handset sales were USD 19bn, a 33% decrease compared to 2006, and the segment incurred an operating loss of USD 1.2bn, compared to operating earnings of USD 2.7bn in 2006.
Motorola’s handset unit could fetch USD 20bn in a sale, according to published reports. The top executive from the major handset maker questioned those reports, saying a range of USD 10-15bn seemed more in line with the unit’s financial performance. He said that unit’s losses account for why it could likely sell at a discount to what otherwise might be its value based on its annual sales.
Motorola’s lawyers in its 2004 spinoff of Free scale Semiconductor in 2004 were White & Case, Wachtell Lipton Rosen & Katz and Paul Weiss Rifkin Wharton & Garrison. ###
- Eric - |
