Motorola shares soar on possible breakup

CHICAGO -- Motorola Inc.'s investors were placated for at least a day - and sent its battered stock soaring 10.3 percent Friday - after the company signaled it may get out of its trademark cell-phone business.

Industry analysts said the handset maker could get at least $5 billion for the troubled unit. But they cautioned that a sale, spinoff or joint venture won't alter the unit's severe challenges and said the lack of promising products in the pipeline may be a deterrent to any buyer.

The company also faces the prospect of more job cuts and a repeat proxy fight with the shakeup-minded Carl Icahn, who nominated four new members for the board of directors and told Motorola he has increased his stake to 5 percent.

Wall Street applauded Motorola's decision to explore alternative strategies, issuing several upgrades.

The Schaumburg-based company's shares jumped $1.19 to $12.69 in Friday trading after rising as high as $12.97. That's only half their value of 16 months ago but a whopping 35 percent higher than last week's 4 1/2-year low of $9.43.

Underscoring its commitment to change, Motorola said late Friday that new CEO Greg Brown had assumed day-to-day responsibilities of the phone business, which had been led since last summer by Stu Reed.

Citigroup analyst Jim Suva called the decision to make big changes under new CEO Greg Brown "a potentially life-saving move for the mobile devices business" - the cell phone unit - which accounted for $19 billion of Motorola's $36.6 billion in sales last year.

"Despite its recent troubles, particularly in Western Europe, we believe that Motorola is still an admired brand in North America and throughout much of Asia, and the handset business could potentially be attractive to an ambitious, aggressive local player," he said in a research note.

But Motorola's timing is poor in view of the near-recession. Also, the company that rode its iconic Razr phone to a phenomenal comeback in the world market in 2005-06 now has not only a weak product lineup but other problems likely to dog it into 2009 and beyond.

"A strong stomach and some Rolaids will be required for whomever is interested in buying Motorola's handset division," RBC Capital Markets analyst Mark Sue said in a client note.

Motorola's troubles stem not only from the lack of a top-selling successor to the Razr but also from its aggressive price-cutting to try to catch Nokia Corp., the runaway leader in handset market share.

The strategy bombed, reducing Motorola's profit margin and ultimately its sales, and it slipped to No. 3 last year behind both Nokia and Samsung Electronics Co.

Deutsche Bank analyst Brian Modoff said internal turmoil and a pending slowdown in the U.S. economy mean management must consider a breakup.

Wireless equipment maker LM Ericsson AB surfaced Friday as tentatively interested in Motorola's cell-phone unit.

"As professional business leaders we look at everything, but we would take a very cautious view on such a thing because we do believe you are better off doing it on your own," Carl-Henric Svanberg, the Swedish company's chief executive, told analysts in response to a question on a conference call.

Other companies speculated as potential buyers range from rival handset makers to Dell Inc. and even Google Inc., although Morningstar analyst Jordan Zounis called chances of those two U.S. companies getting involved "remote."

Motorola last year pulled back from developing markets, cut 7,500 jobs and said goodbye to CEO Ed Zander. More cuts and changes are likely as the new management team scrambles to retain control in the face of a revived threat from Icahn, who informed Motorola that he now owns 114.3 million shares - a stake worth $1.45 billion at Friday's closing price.

Icahn said he is nominating former Viacom Inc. CEO Frank Biondi, WR Hambrecht & Co. founder and CEO William Hambrecht, MIT professor and semiconductor materials processing expert Lionel Kimerling and Icahn Enterprises CEO Keith Meister for Motorola's board.

He said they are necessary to "help insure that the board moves aggressively" on its "long-overdue" strategy to separate the phone unit from its other businesses. Those businesses are enterprise mobility solutions, which makes public-safety radios and bar-code scanners, and home and network mobility, which makes cable television equipment and gear for cell phone carriers.

Icahn said he hopes Motorola will avoid a proxy fight by accepting his candidates for the board.

He said later in an interview with CNBC that "they have to really mean what they say and ... the board has to really do what they're saying they're going to do. They have to take the handheld business away from the management team and the rest of the company."

Motorola said it was reviewing Icahn's proposal.

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On the Net:

Motorola Inc.: http://www.motorola.com


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