Struggling Motorola to split into two companies

By Giselle Tsirulnik

March 27, 2008

Greg Brown is president/CEO of Motorola

Motorola Inc.'s board of directors has started a process to create two independent, publicly-traded companies to restructure the strategy of its businesses and position its struggling mobile devices and broadband business for a revival.

The creation of the two independent businesses will consist of a tax-free distribution to Motorola's shareholders. The distribution will be subject to further financial, tax and legal analysis, resulting in shareholders having shares of two independent and publicly-traded companies.

"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/CEO, in a statement.

"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," he said.

Motorola's mobile devices business designs, manufactures and sells mobile handsets and accessories.

The completion of such a separation is subject to conditions such as inter-company agreements, filing of required documents with the Securities and Exchange Commission and a ruling from the Internal Revenue Service.

If approved, the separation would occur next year.

This announcement comes soon after billionaire activist Carl Icahn filed a lawsuit against Motorola Inc. to get hold of the records relating to Motorola's mobile phone business strategy (see story).

Mr. Brown told analysts listening in on the conference call that Motorola offered Mr. Icahn two board seats if he would drop the lawsuit.

Mr. Icahn's lawsuit, filed in the Delaware Court of Chancery, seeks board and committee minutes and documents relating to the service and selection of Motorola's senior officers, the strategy of Motorola's mobile devices business and the realignment of its business regarding mobile devices.

On Motorola's conference call with Mr. Brown, participants asked if the handset division will have enough management left to save the division. Analysts also questioned whether the division would have enough cash to sustain the division while it remains unprofitable, the New York Times reported.

Mr. Brown said that Motorola still has a lot of work to do before the split. He said it would be a product-led recovery and that Motorola is currently taking necessary measures to ensure and solidify that direction.

Motorola did not respond by press deadline.

Meanwhile, Motorola is not yet sure of how the company will divide the use of its brand name.

"Our priorities have not changed with today's announcement," Mr. Brown said. "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.

"As part of that effort, we have undertaken a global search for a new chief executive officer for the mobile devices business," he said. "We believe strongly in our brand, our people and our intellectual property, and expect that the mobile devices business will be well-positioned to regain market leadership as a focused, independent company."