What Is Motorola's Worth?Motorola Inc. is living on the Razr's edge these days, but slicing up the company may not be so easy.Signs are growing that the telecommunications-equipment maker may be contemplating a breakup in the wake of the collapse in popularity of its Razr cellphone.Such a move would satisfy activist investor Carl Icahn, who this year ran an unsuccessful proxy fight to gain a board seat. He says carving up Motorola could produce almost $20 billion of additional shareholder value. That translates to nearly $8 more a share and would make the stock worth roughly 50% more than its current price.Analysts agree in principle with Mr. Icahn's math, although many caution that Motorola needs to fix underlying problems in the handset division to maximize the value of a breakup. Breaking Motorola into stand-alone units would highlight uncertainties facing its lesser-known businesses and would go against the trend of consolidation in the telecommunications-equipment business. And any effort to sell one or more of the businesses could fail because of the frozen credit markets.Speculation could lift Motorola's stock more than an actual split-up. The shares fell to a low of $14.87 in November from a little more than $20 at the start of the year. They were up six cents to $16.19 yesterday in 4 p.m. New York Stock Exchange composite trading.Motorola has floundered this year since the Razr ran aground, with a portfolio of new cellphones that failed to meet demand either for high-end multimedia phones or for low-cost phones for the developing world. The company stanched its losses in the third quarter by cutting costs.Motorola Chief Executive Ed Zander rejected Mr. Icahn's proposal, but he is stepping down. President and Chief Operating Officer Greg Brown is taking over, and director Tom Meredith, the former finance chief of Dell Inc., is acting finance chief. Mr. Brown is seen as a deal maker and open to restructuring. Last week, Mr. Meredith said that while he believed 'there's every opportunity for us to create significant economic value as a whole,' that doesn't mean other options aren't viable. 'A change in circumstance sometimes requires a change in action. So I will leave it at that,' Mr. Meredith told a Lehman Brothers investor conference.Motorola has three divisions: the mobile-devices operation that produces cellphones; the enterprise-and-government division that makes public-safety radios and hand-held devices for workers on the road; and the home-and-networks division that makes cable-television set-top boxes and telecommunications-network gear.The breakup talk is driven by simple math. Mr. Icahn says the company's two lesser-known pieces are worth $29 billion, and that plus the $4 billion in cash on the balance sheet comes close to Motorola's market value, meaning the company's shares are trading as if the loss-making cellphone business, which accounts for 51% of Motorola's $39 billion in sales, were worth next to nothing.Mr. Icahn believes the cellphone division could sell for the value of one year's revenue, or about $20 billion. Shares of Nokia Corp., which dominates the global handset business with a 38% market share, trade at about twice annual sales.'The point is that if the handset business was spun off, with over $20 billion in revenue in a growing industry, it is obviously worth a great deal more than zero,' Mr. Icahn said in a telephone interview. As of Sept. 30, he owned 3.3% of the company's shares, making him the third-largest shareholder, after fund managers Dodge & Cox Inc. and Capital Research & Management Co., according to FactSet Research Systems Inc.Analyst Ping Zhao of research concern CreditSights values the parts of Motorola, without the mobile-devices division, at $33 billion.One obstacle to a breakup is whether the credit-market crunch has reduced the number of potential buyers. Another option would be to spin out the units as publicly traded companies, either through initial public offerings or stock dividends to shareholders.The question is how much would a buyer pay for each of the pieces. One industry banker says the cellphone piece could sell for less than one times sales if its problems aren't fixed.The public-safety-radio business, where Motorola holds a near monopoly, could appeal to defense contractors, although splitting off such a business would destroy the synergies it has with the handset business. The picture also is mixed for the cable-box business, where profit margins could come under pressure from cable operators who want lower prices.Many analysts believe Motorola would have sold its small networks business if it had found a buyer in recent years.A Motorola spokeswoman said the company remains committed to 'the current strategy of providing integrated communications solutions across its businesses as well as improving the financial performance of its mobile-device division.'
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