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Icahn Calls, Motorola Finally Listens: Company to Split in Two

motorola cutsCarl Icahn’s not asking Motorola if “they can hear him now.”  Wednesday, the beleaguered company caved to shareholder pressure and announced they would agree to split the business into two separate companies.  One will house the mobile devices (cell phone) business.  The other will become home to their broadband and mobility solutions group.

In a press release, Motorola said the separation is expected to happen in 2009 and that it will be implemented as a tax-free shareholder distribution.  A new CEO will be recruited to run the phone company.

Icahn, one of Motorola’s largest shareholders, and the leading voice for change, fired back a hostile letter to the board (available here) that asked them to clarify their intent.  In three questions, he asked: why will it take so long to split, why did it take the threat of a lawsuit to make it happen, and whether or not, in fact, it will actually happen at all.

With the fight now grabbing headlines, it’s clear the rest of the company’s board is hearing him loud and clear.

In the fourth quarter, Motorola earned only a paltry $100m (4 cents a share).  That was a dramatic decline from the $623m earned a year earlier.  The cell phone business, which saw a year over year drop off of more than 30% in net sales to $18.9b in 2007, was largely responsible.

Separating the business groups, and giving the phone group its own singularly focused management team,  will theoretically allow more attention to paid to the product pipeline (which has stagnated and suffered a lack of creativity since the boom of the Razr in 2005).

That prospect, however, remains only “theory” because for now, too much information is as yet unsaid.   

As Icahn says in his letter: “Time is of the essence and decisive action is required to reposition the Mobile Devices business for success as an independent company. [but] today’s announcement begs a few key questions.”

Two days ago Icahn sued Motorola to gain access to documents associated with the cell phone business.  He is also fighting with them to get four seats on the company’s board.  It’s the second proxy fight he’s had with the company in two years.


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