Motorola on Wednesday unveiled a plan to spin off its money-losing mobile phone unit into a separate company, a central demand of activist investor Carl Icahn, who has been waging a legal and proxy battle with current management.
On news of the plan, shares of Motorola rose $0.11, or 1.1 percent, to $9.87 in trading Wednesday morning.
The move by Motorola's board could blunt a plan by Mr. Icahn to install a handpicked four-man slate on the company's board of directors, an analyst said.
"This begs the question: If Icahn wants board members, what would he do differently? What would it help getting Icahn's board members on?" asked Bill Choi, an analyst with Jeffries & Co.
Mr. Choi said the decision to spin off the mobile devices unit in a tax-free distribution to shareholders apparently came when no strategic buyers emerged.
"Taking the decision to split it apart means you're not trying to sell it," he said. "It probably means there's no buyer for this business. They need to turn it around. It will take about a year."
The mobile devices unit, which produces the Razr line of mobile phones, accounted for 52 percent of net sales in 2007. That unit, however, has been a financial drag on the overall company. In 2007, the mobile devices unit posted net sales of $19 billion, a 33 percent decline from the $28.4 billion in 2006. Not only did the company sell 27 percent fewer units, but also the average selling price fell 9 percent.
Mr. Icahn, who lost a 2006 proxy battle, is seeking to elect a dissident slate of four directors, including former Viacom chief executive Frank Biondi Jr. and WR Hambrecht founder and Chief Executive William Hambrecht. As of December 31, Icahn Capital Management had 60.5 million shares worth about $970 million, or 2.7 percent of shares outstanding.
As part of his battle to gain leverage over Motorola's management, earlier this month Mr. Icahn filed a lawsuit in the Chancery Court in Delaware seeking corporate documents related to the potential spin-off of the mobile phone unit as well as details on the use of corporate aircraft by board members and senior managers.
Overall, Motorola posted net sales of $3.6 billion in 2007, down 15 percent from the prior year with a loss from continuing operations of $105 million, or $0.05 per share, versus earnings from continuing operations of $3.3 billion, or $1.30 per diluted share.
In a statement, Greg Brown, Motorola's president and chief executive, said the two companies would provide "more tailored capital structures, and increased management focus–as well as more targeted investment opportunities for our shareholders.”
In addition to mobile devices, Motorola builds cable set-top boxes and voice and data systems and wireless networks for corporate and government customers.
Mr. Icahn also was a shareholder in BEA Systems and was a central player in that company's acquisition by Oracle.