After months of speculation and market angst, Motorola has decided to split its struggling mobile handset unit from the rest of the company and alter its executive board to include representatives of outspoken shareholder critic Carl Icahn.

In late March, Motorola CEO Greg Brown announced the board's decision to transform the communications equipment giant into two publicly traded companies — one focused on mobile devices and the other focused on broadband and mobility solutions.

Splitting the company is a strategy that Icahn — now holding 6.4% of the company's stock — has been advocating for some time as Motorola rapidly lost market share in the commercial mobile handset arena during the past year and saw its stock price decline from $19.68 per share in November to less than $9 per share in mid-April.

Brown said the decision to make the split followed the Motorola board's review of the company's operations. By splitting Motorola, each division would allow its management to better focus on its market, and a separate handset company would help attract a “world-class CEO” to head the mobile-devices unit, Brown said.

Citing “numerous details” such as legal, tax and regulatory issues, Brown said Motorola expects to execute the split some time in 2009. Mobile wireless consultant Andrew Seybold said he is not surprised that Motorola will wait until next year to split the company.

“I think they're fishing for somebody to come buy the handset group,” Seybold said. “This gives them a little time to do that.”

Some industry observers expect the timetable for the split to accelerate after two Icahn representatives were nominated to the Motorola board as part of an agreement struck to avoid a potentially harmful proxy battle at the company's annual shareholder meeting in May.

As a result, William R. Hambrecht, CEO of the WR Hambrecht financial services firm, will be nominated to the board, while Keith Meister, vice chairman of Icahn Enterprises, was placed on the board effective immediately.

Meister's nomination and immediate board appointment was a big win for Icahn, as Motorola previously questioned Meister's qualifications, to which Icahn retorted, “What does one have to do to qualify — lose $37 billion?” in a letter to the board.

Roger Entner, vice president of communications for IAG Research, said Motorola's decision to grant Icahn's wishes for board nominees made sense for a company that needs to focus on addressing a number of issues.

“Not having a proxy fight is certainly going to help,” Entner said. “Icahn narrowly lost last time around. Now he owns more stock … and he would have won this thing. This is acknowledging the inevitable.”

Leading the board during this period will be David Dorman, who was named as non-executive chairman just days after Motorola reached the agreement with Icahn. Dorman served as president of AT&T when the once-monolithic telecommunications carrier was split into separate units earlier this decade. Entner said he was “a little surprised” by Dorman's appointment but believes he is well-equipped for the task.

Seybold also said he was surprised that Dorman was named chairman because his background has been in the network-provider space. However, Seybold said Dorman's experience from splitting AT&T could help Motorola execute a similar strategy.

“There's almost as many logistics in splitting a company as in putting two companies together,” Seybold said.

Indeed, there are several unanswered questions surrounding Motorola's future, most involving which portions of the company will be included in the new handset company. For instance, some believe that iDEN handset production should be part of the new company, while others believe it is a more specialized product line better-suited to remain with the rest of the company, which will include land mobile radio (LMR) systems.

Also in question is the future of Brown as CEO. Seybold said he believes the presence of Icahn representatives on the Motorola board means Brown has a “shorter leash than it would have been.” However, Entner said Motorola is in such a difficult situation that it will take time for the company to reverse its fortunes, which could mean a longer tenure for Brown.

“I don't see how he can turn something like that around in less than a year,” Entner said. “If they give him less than a year, he doesn't have a chance, and I think that everybody should have a fighting chance.”

But the biggest industry debate involves which company will keep the well-known Motorola brand. Entner said the brand should stay with the mobile-devices division. “If they spin it off without the Motorola name, it is a dead asset,” he said.

Entner said he believes the Motorola name needs to stay with the handset company because of the fast-moving pace of the consumer wireless sector. With government and LMR customers typically having long-term contracts and relationships, changing the name would not be as damaging and could be transitioned effectively.

Seybold offered a different opinion. “To public safety and first responders, the Motorola name is everything,” he said. “In handsets, it's going to be less and less important. If I were making the decision, I would keep it with the two-way radio folks.”

MOTO FLURRY

Nov. 30, 2007: Motorola CEO Ed Zander announces resignation. Greg Brown is named as successor, effective Jan. 1.

Jan. 31, 2008: Motorola board begins review of the company to explore potential “structural realignment.”

Feb. 1, 2008: Motorola announces that shareholder Carl Icahn plans to nominate four directors to the board.

March 26, 2008: Board announces plan to split Motorola into two publicly traded companies, one of which will be focused on creating commercial mobile devices.

April 7, 2008: Motorola avoids proxy fight by nominating two representatives of Icahn to the board of directors.

April 9, 2008: Motorola board elects former AT&T executive David Dorman as chairman.
Source: Motorola