Motorola to split in two, yielding to investor pressure

CHICAGO — Motorola announced plans to separate its struggling handset business from other operations today, forming two separate, publicly traded companies after months of agitation from frustrated investors.

The cellphone maker has been under pressure from billionaire investor Carl Icahn for changes meant to revitalize its cellphone business. The cellphone unit has seen its sales plummet with the company unable to produce a second act to the once-popular Razr phone.

Motorola said the handset business will operate separately from another company that will encompass its home and networks business, which sells TV set-top boxes and modems, and its enterprise mobility solutions, which sells computing and communications equipment to businesses.

Chief Executive Greg Brown said splitting the company would allow each unit to better focus on its own business, particularly improving the struggling cellphone division.

"The creation of the two independent publicly traded companies provides improved management focus and a capital structure that's more tailored to the individual business needs," he said during a conference call. "And it will provide some improved alignment and agility and will help us going forward."

Motorola said it hopes the transaction will be tax-free, allowing shareholders to own stock in both of the new companies. If the deal is approved, the two units would be separated in 2009.

Brown said Motorola will launch a search for a new chief executive of the Mobile Device business as it works to regain favor with customers and its No. 2 position in the cellphone market.

Motorola lost that spot last year to rival Samsung Electronics. Finland's Nokia is the industry leader.

Analysts praised today's widely anticipated announcement, as investors boosted the company's stock price. Motorola shares closed up 26 cents, or 2.7 percent, at $10.02.

"We view this as a clear positive, as it will make it easier for Motorola's mobile devices business to attract talent and execute its turnaround," Morgan Keegan analyst Tavis McCourt told investors in a research note.

Today's announcement was just the latest shake-up at Motorola, which rode the success of the iconic Razr phone from 2005 to 2006 but has stumbled since amid stiff competition.

Last year, the company pulled back from developing markets and cut 7,500 jobs, while CEO Ed Zander resigned.

A flock of executives have left the company this year, and more cuts and changes are likely as the new management team scrambles to retain control in the face of a revived threat from Icahn.

Icahn, who has been steadily increasing his Motorola position, disclosed in a filing this month that he now owns 142.4 million shares, or 6.3 percent — up from 5 percent a month ago.

Today's announcement came two days after Icahn sued Motorola, seeking documents about its executives and its cellphone business.

Icahn plans to use the material in his battle to win four seats on Motorola's board, his second proxy fight with the company in two years. He rejected a concessionary offer of two seats from the company.

A message left with Icahn's office was not immediately returned.