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Motorola to split in two
Marking a change in fortunes for handset division?

By David Meyer

Published: Thursday 27 March 2008

Motorola is to split into two companies, following months of speculation about the future of its handset division.

Subject to "further financial, tax and legal analysis", the US communications giant will next year spin off its mobile-devices business as an independent, publicly traded company, which will take with it a range of technology and intellectual property.

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If the split goes through as planned, what will remain will be the "broadband and mobility solutions" business, which includes enterprise mobility, government and public safety, and Motorola's home and networks divisions.

Despite the fact that recent months have seen a flurry of speculation about Motorola's handset division, which many have seen as performing poorly, the announcement has caught the industry off guard. The views of activist investor Carl Icahn, who owns a five per cent stake in Motorola, are widely regarded as being a major factor in the decision to split the company. Icahn has been trying to get four directors onto Motorola's board and is suing the company in an attempt to acquire documents relating to its handset business.

According to a statement, the split will take the form of a "tax-free distribution to Motorola's shareholders… resulting in shareholders holding shares of two independent and publicly-traded companies".

Motorola president and chief executive Greg Brown said: "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 advisers. 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."

Brown added that a search was now underway to find a chief executive for the new mobile-devices company. Motorola is currently in third place worldwide in the handset-manufacturing business, behind Nokia and Samsung.

Ovum analyst Martin Garner said that splitting off its handset division was "the only option" left to Motorola.

Garner said the decision to split off the handset division would likely "draw a line" under the current arrangement, which he described as "a bit of a poisoned chalice", noting the high departure rates of executives and staff.