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3/26/2008
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Under Pressure, Motorola Breaks Itself Into Two Companies

The company will split itself into two units in 2009, one to handle mobile phones and the other to handle just about everything else.

With top executives fleeing the company in alarming numbers and billionaire investor Carl Icahn breathing down its neck, Motorola announced Wednesday it will break up the legendary electronics communications company and create two independent publicly traded companies.

The company will create two communications companies in a tax-free transaction in 2009: Mobile Devices, its handset operation, and Broadband & Mobility Solutions, a catch-all entity containing its government and public safety units, telecom gear, and cable set-top receivers. Greg Brown, Motorola's president and CEO, told an online conference of investment analysts Wednesday morning that an executive search company has been interviewing candidates to serve as CEO for the Mobility Devices unit for several weeks.




Motorola's recent phones, like the Rokr E8 pictured here, have not proved as popular as the company's best-selling Razr phones from years ago.
(click for image gallery)

Brown ducked the question when asked whether Icahn, who has been blasting Motorola management and calling for a company breakup, figured in the decision to split the company. He noted Icahn earlier this week had rejected an offer by Motorola to place two directors on the company's board. Targeting Motorola's May shareholders meeting, Icahn has been seeking to place four directors on the company's board.

"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 said in a statement. Motorola stock was up 5% in early trading after the announcement.

Brown also pointed to a top-level Motorola meeting Jan. 31, when the company said it would evaluate "the structural and strategic realignment of its businesses." The company said then that it would consider selling off the Mobile Devices unit, but likely acquirers in the handset business, such as Nokia, Samsung, and LG Electronics, quickly signaled they weren't interested in the troubled unit, which has been losing market share rapidly.

Brown said the management team and board members had been joined by "independent advisers" in evaluating the company; a team of advisers from consulting firm McKinsey has been looking at restructuring Motorola for several weeks, according to media reports.

Founded in the 1920s by two Galvin brothers, Paul and Joseph, the Galvin family held top management positions into 2003, when chairman Chris Galvin left under intense fire from stock analysts.

Motorola had been plagued with a culture of "warring tribes" -- different operating units competing for attention from headquarters -- and Chris Galvin often found himself caught in crossfire between units.

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