- The Washington Times - Thursday, March 27, 2008

CHICAGO (AP) — Motorola Inc. bowed to pressure from investors yesterday by announcing a plan to split its struggling cell-phone business from other operations and form two separate publicly traded companies.

The widely expected deal comes as the suburban Chicago cell-phone maker faces a second straight year of agitation from billionaire investor Carl Icahn, who has become increasingly frustrated with Motorola’s eroding phone sales.

Executives said the move will allow the two companies to better focus on their respective strengths and weaknesses, while accelerating the turnaround plan for the cell-phone unit. It has seen its fortunes slip after trend-conscious customers lost interest in the Razr flip phone.

“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,” said Chief Executive Officer Greg Brown, who will remain at the helm of the split company’s non-cell-phone unit. “And it will provide some improved alignment and agility and will help us going forward.”

Specifics of the deal haven’t been disclosed, but Motorola said its handset business will operate separately from another company offering its TV set-top boxes and modems and its computing and communications equipment.

Schaumburg, Ill.-based Motorola said it anticipates the transaction will be tax-free, allowing shareholders to own stock in both of the new companies. If the deal is approved by regulators, the two units would be separated next year.

Officials haven’t said whether one company or both will retain the Motorola brand name or which company will distribute stock to existing shareholders.

Mr. Icahn called yesterday’s announcement “much delayed and long overdue” and continued to push for the election of his four board members.

“Time is of the essence, and decisive action is required to reposition the Mobile Devices business for success as an independent company,” Mr. Icahn said.

Many other questions remain about the plan, the success of which may take years to measure. But analysts said it likely means a widely anticipated sale of the cell-phone unit is on hold.

A flock of executives left the company this year, and more cuts and changes are likely as the new management team scrambles to retain control.

Mr. 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 of those outstanding, up from 5 percent a month ago.

Mr. Icahn sued Motorola earlier this week, seeking documents about its executives and its cell-phone business.

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

Motorola shares climbed 26 cents, or 2.7 percent, to close at $10.02 yesterday.

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