March 26, 2008, 10:38 am
Split Personality: Will A Motorola Break-Up Help?
Posted by Heidi Moore
Will the split-up of Motorola help the beleaguered company? Or is it just a cosmetic rearranging meant to appease activist Carl Icahn?
Icahn held 6.3% of Motorola’s stock as of early March and has been making the most of it. Hehas been pushing Motorola to sell off or separate its money-losing mobile devices unit, which makes phones like RAZR and has been trying to salvage some market share from the onslaught of Research In Motion’s omnipresent BlackBerry. Earlier this week Icahn rejected Motorola’s offer of two board seats as he chased bigger fish: board documents related to the mobile devices unit. As per his usual playbook, Icahn has attacked Motorola both from the front with his attack on mobile devices as well as from the flank, with a battle about executive pay.
There is no question that Motorola’s mobile device unit has been in trouble, and that the trouble has leaked into the company itself, potentially prompting the death of an American icon. Motorola has seen an exodus of top executives.
But will the separation of this company actually be a good thing for Motorola? What Icahn wanted most of all was new leadership for the handset division; Deutsche Bank analysts today also said the best part of the split-up is the promise of new management for handsets. That could have been achieved without a spinoff. And for the next year, the spinoff is bound to cause some confusion as Motorola tries to get its house in order, and Deutsche today pointed out that one big question is which part of Motorola will get the fancy, beloved Batman-like Motorola corporate logo and brand. (The natural answer is that it goes with the phones.)
And then there’s the issue of value. Despite the handset business’s strategic struggles, it is still worth a lot. Cowen & Company analysts today estimated the value of Motorola’’s handset business at around $4 billion, based on the number of units sold.
And although the handset unit ran a $1.2 billion operating loss last year, it also brought in $18.99 billion in annual sales — half of all Motorola’s sales. That’s a high price to pay for a few new executives.
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