NEW YORK, March 26 (Reuters) - Motorola Inc said on Wednesday it would split into two publicly traded entities to separate its loss-making handset division from its other businesses, sending its shares up about 5 percent.

The move, which comes amid an intensifying proxy battle against activist investor Carl Icahn ahead of a May 5 annual meeting, could be a prelude for a joint venture for the cell phone business, analysts said.

They said separating the cell phone business, which has been losing market share to rivals like Nokia and Samsung Electronics, could help Motorola find a strategic investor, such as among Asian handset makers that are keen to win a bigger share of the U.S. market.

Under pressure from its second-largest investor Icahn to boost shareholder returns, Motorola announced a strategic review in late January but no potential buyers have emerged.

"I suspect it's a prelude for a joint venture for the mobile devices business," said Avian Securities analyst Tero Kuittinen, who sees Chinese and Japanese companies as the top candidates for a venture.

"It might be easier to negotiate with a standalone unit," Kuittinen said. "It's positive news because it shows the company is moving toward a serious restructuring."

Motorola, now ranked third in the global handset market, said the split would take the form of a tax-free distribution to its shareholders and expected it to be completed in 2009. The company has already started to look for a new head for its mobile devices business.

"We expect this action to enhance recovery in mobile devices and accelerate efforts to attract a new leader," Chief Executive Greg Brown said on a conference call with analysts.

He did not give details on the new capital structures or how shares would be allocated to existing shareholders, saying these details would be worked out in the coming months.

Motorola plans to separate its Mobile Devices unit from its Broadband & Mobility Solutions business. The latter consists of its network equipment, enterprise and public safety businesses. Brown did not give details on the branding strategy for each business, beyond saying the Motorola brand is important for the mobile devices business.

Shares of Motorola, which has a market value of about $22 billion, have fallen more than 60 percent since October 2006, amid handset market share losses and criticism for failing to come up with a strong successor to the once-lauded Razr phone.

The stock was up 5.12 percent at $10.26 in early trading on the New York Stock Exchange, after rising more than 10 percent in pre-market trading.

Some analysts, however, were not convinced of the positive impact of the planned company split.

"In the short term restructuring is not helping Motorola on the operational level. Probably, the first quarter is weak for Motorola, which relatively could benefit others," said Carnegie analyst Janne Rantanen.

The news came as some analysts lowered their already weak estimates for Motorola's handset sales for 2008. UBS analyst Maynard Um cut his estimate to 130.2 million units for the year, from 145.6 million. Brown declined comment on guidance.

Motorola is engaged in a proxy battle with Icahn, who owns a 6.3 percent stake. He has proposed a slate of four directors to the board and is suing Motorola to force it to hand over documents related to its mobile devices business.

Icahn was not immediately available for comment on Wednesday. He told Reuters in an interview on Monday that he would not be satisfied unless Keith Meister, chief executive of Icahn Enterprises and manager of Icahn's $8 billion fund, became a director of Motorola.

Motorola said on Wednesday there was no assurance the planned split, which is subject to further financial, tax and legal analysis, would occur. (Additional reporting by Tiffany Wu in New York and Terhi Kinnunen in Helsinki; Editing by Steve Orlofsky and Dave Zimmerman)

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