Motorola spins out mobile devices business

The move will see Motorola keep its broadband and mobility solutions business and follows intense demands from the company's second-largest shareholder, Carl Icahn, for changes at the struggling company.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 3/26/2008

Motorola Inc has succumbed to pressure to separate its mobile devices business, today announcing that the company will be split into two independent, publicly traded companies.

In doing so, Motorola’s board has decided to spin out its struggling mobile devices business and to keep its broadband and mobility solutions business, which includes Motorola’s enterprise mobility, government and public safety, and home and networks businesses.

Today’s decision follows on the company’s January 31 announcement that it was considering separating its handset unit to create shareholder value.

“Our decision to separate our mobile devices and broadband and mobility solutions businesses follows a review process undertaken by our management team and board of directors, together with independent advisors,” said Greg Brown, Motorola’s president and CEO, in a statement this morning. “Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus – as well as more targeted investment opportunities for our shareholders.”

The decision comes just days after Motorola’s second-largest shareholder, Carl Icahn, took legal action against the Schaumburg, Ill-based company in an effort to “investigate whether and to what extent the board of directors of Motorola failed in their duties as directors in supervising management and setting policy and direction of Motorola.” Icahn, who had been challenging Motorola’s management for more than a year, recently questioned Brown’s qualifications as CEO, pushed for changes to the company’s board, and all but demanded Motorola rid itself of its mobile devices business.

Icahn’s actions were not without warrant: Over the past 18 months, the market value of Motorola has dropped by more than $37 billion; company financials have slid on the mobile devices unit’s poor performance; and the company dropped in 2007 mobile device shipment rankings after shipping some 60,000 less handsets last year than in 2006. Indeed, Motorola’s handset sales woes were so deep that they also affected Freescale, which counts Motorola as its largest wireless customer. The company has stated that it is looking for a new major 3G customer, because of Motorola’s slowing handset sales.

As further evidence of trouble at Motorola, the company has been swapping out executives -- starting with the resignation of former CEO Ed Zander and the appointment of Brown in January --  and as of late has sourced new company talent from the private equity realm.  

One of Brown’s first actions as CEO was to examine the viability of Motorola’s mobile devices unit, which he did less than a month after his promotion from president and COO. At the time, Brown admitted that “the recovery in mobile devices will take longer than expected and there is a lot more work to be done,” but said that Motorola was aggressively rationalizing its cost structure and “working to get mobile devices back on track.”

In today’s statement, Brown maintained that Motorola’s priorities have not changed. “We remain committed to improving the performance of our mobile devices business by delivering compelling products that meet the needs of customers and consumers around the world,” he said.

As part of the effort, Brown said Motorola has begun a global search for a new CEO for the mobile devices business, which is currently under his watch.

Based on current plans, the creation of the two stand-alone businesses is expected to take the form of a tax-free distribution to Motorola’s shareholders. Motorola expects that the separation of its businesses would take place in 2009.

For commentary on this news, see "Moto splits in two, what will Carl Icahn do with all his free time?"