NEW YORK, March 26 (Reuters) – Motorola Inc said onWednesday it would split into two publicly traded entities toseparate its loss-making handset division from its otherbusinesses, sending its shares up about 5 percent.
The move, which comes amid an intensifying proxy battleagainst activist investor Carl Icahn ahead of a May 5 annualmeeting, could be a prelude for a joint venture for the cellphone business, analysts said.
They said separating the cell phone business, which hasbeen losing market share to rivals like Nokia andSamsung Electronics, could help Motorola find astrategic investor, such as among Asian handset makers that arekeen to win a bigger share of the U.S. market.
Under pressure from its second-largest investor Icahn toboost shareholder returns, Motorola announced a strategicreview in late January but no potential buyers have emerged.
"I suspect it’s a prelude for a joint venture for themobile devices business," said Avian Securities analyst TeroKuittinen, who sees Chinese and Japanese companies as the topcandidates for a venture.
"It might be easier to negotiate with a standalone unit,"Kuittinen said. "It’s positive news because it shows thecompany 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 distributionto its shareholders and expected it to be completed in 2009.The company has already started to look for a new head for itsmobile devices business.
"We expect this action to enhance recovery in mobiledevices and accelerate efforts to attract a new leader," ChiefExecutive Greg Brown said on a conference call with analysts.
He did not give details on the new capital structures orhow shares would be allocated to existing shareholders, sayingthese details would be worked out in the coming months.
Motorola plans to separate its Mobile Devices unit from itsBroadband & Mobility Solutions business. The latter consists ofits network equipment, enterprise and public safety businesses.Brown did not give details on the branding strategy for eachbusiness, beyond saying the Motorola brand is important for themobile devices business.
Shares of Motorola, which has a market value of about $22billion, have fallen more than 60 percent since October 2006,amid handset market share losses and criticism for failing tocome up with a strong successor to the once-lauded Razr phone.
The stock was up 5.12 percent at $10.26 in early trading onthe New York Stock Exchange, after rising more than 10 percentin pre-market trading.
Some analysts, however, were not convinced of the positiveimpact of the planned company split.
"In the short term restructuring is not helping Motorola onthe operational level. Probably, the first quarter is weak forMotorola, which relatively could benefit others," said Carnegieanalyst Janne Rantanen.
The news came as some analysts lowered their already weakestimates for Motorola’s handset sales for 2008. UBS analystMaynard Um cut his estimate to 130.2 million units for theyear, from 145.6 million. Brown declined comment on guidance.
Motorola is engaged in a proxy battle with Icahn, who ownsa 6.3 percent stake. He has proposed a slate of four directorsto the board and is suing Motorola to force it to hand overdocuments related to its mobile devices business.
Icahn was not immediately available for comment onWednesday. He told Reuters in an interview on Monday that hewould not be satisfied unless Keith Meister, chief executive ofIcahn Enterprises and manager of Icahn’s $8 billion fund,became a director of Motorola.
Motorola said on Wednesday there was no assurance theplanned split, which is subject to further financial, tax andlegal analysis, would occur.(Additional reporting by Tiffany Wu in New York and TerhiKinnunen in Helsinki; Editing by Steve Orlofsky and DaveZimmerman)
? Reuters 2008 All rights reserved
