From: Reuters
Published March 26, 2008 01:04 PM

Motorola to split in 2009

By Sinead Carew

NEW YORK (Reuters) - Motorola Inc said on Wednesday it would split into two publicly traded entities in 2009, indicating that it had no quick fix in sight for its money-losing handset division.

Motorola's stock gave up most of its brief 5 percent gain after the announcement, as investors worried about a second year of disappointments from the company which has been losing market share to rivals such as Nokia and Samsung Electronics.

"It could be 18 months before it happens, by which time the outlook for either of the businesses could be completely different," said London-based Nomura analyst Richard Windsor, who had hoped such a deal could be done this year.

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Analysts said the decision may put Motorola in a better position to negotiate a joint venture or a sale for the mobile devices business, but that in the meantime they were left in suspense.

"Folks know its going to take a while and the next couple of quarters is going to be tough," said American Technology Research analyst Mark McKechnie, who values the mobile devices business at about $2 a share or $4 billion, based on Motorola's current share price.

Motorola shares rose as much as 5 percent to $10.30, before trading up 25 cents at $10.01 on the New York Stock Exchange shortly after midday.

The decision follows a loss in market value of 60 percent to about $22 billion in just over a year, and calls by activist investor Carl Icahn for Motorola to break up. Icahn is in a proxy battle with Motorola ahead of its May 5 annual meeting.

SEPARATE AND SELL?

No buyers have emerged for the cell-phone unit since Motorola announced a strategic review in late January.

But separating it could help Motorola find a strategic investor, such as a Chinese or Japanese handset maker keen to win a bigger share of the U.S. market.

"I suspect it's a prelude for a joint venture for the mobile devices business," said Avian Securities analyst Tero Kuittinen. "It's positive news because it shows the company is moving toward a serious restructuring."

Motorola, ranked third in the global handset market, said the split would take the form of a tax-free distribution to its shareholders and that it expected to spend several months working out the details of the breakup.

The company, which has had multiple key management changes in the last year, said splitting up the company could help to attract better leadership 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 operations which includes its television set-top box and network equipment business.

Brown did not give details on the branding strategy for each business, beyond saying the Motorola brand is important for the mobile devices business.

Motorola has suffered sharp losses in market share for more than a year amid criticism for failing to come up with a strong successor to the once-lauded Razr phone.

Some analysts said the move could hurt more than it helps.

"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.

Brown would not comment on Motorola's financial outlook beyond repeating his earlier statements that 2008 would be a difficult year for mobile devices.

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.

Icahn, Motorola's second-biggest shareholder, with ownership of more than 6 percent, 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 the planned split is subject to further financial, tax and legal analysis.

(Additional reporting by Tiffany Wu in New York and Terhi

Kinnunen in Helsinki; Editing by Steve Orlofsky, Dave

Zimmerman, Richard Chang)

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