When big-time investor Carl Icahn makes a big move, everybody notices. Since the beginning of the year, Icahn has increased his stake in Motorola Inc. (NYSE: MOT) by nearly 50 million shares, some 22.7 million of which he acquired within the last couple of months.
Motorola has managed to stop the bleeding in its mobile devices business, mostly as a result of booming sales for its Droid smartphones, which use the Android operating system from Google Inc. (NASDAQ: GOOG). Motorola has also sold its wireless network infrastructure business to Nokia Siemens Networks, a joint venture between Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI), for $1.2 billion in cash.
But what must be particularly appealing to Icahn is Motorola’s plan to split the company in half next year. One company, called Motorola Mobility, stands to end up with as much as $4 billion in cash and no debt following the split. This company will be making and selling smartphones and other consumer devices.
The second company, to be called Motorola Solutions, will be making and selling public safety radios, scanners, and some telecom devices. This part of the existing Motorola has been a consistent money-maker and is the reason that the company is sitting on $8.3 billion in cash, cash equivalents, and short-term investments.
Motorola’s plans for that cash could be what are driving Icahn’s investment. If the company is split up as planned, about half the cash will go to pay down debt, and the other half will go to the Mobility business. Perhaps Icahn thinks he can get a better deal if he can force the company to part with the cash before the split happens.
Splitting the company into two pieces may be good for the long-term investors in Motorola, but Icahn is not known for taking a particularly long view of his investments. Motorola is not paying dividends, and Icahn may be able to persuade some investors to join him in divvying up at least some of the company’s cash before the break-up.
Motorola’s share price has been hanging around a range of $6.50-$8.00/share since the beginning of the year. If Icahn is prepared to wait for Motorola to split, he could pick up more shares at a reasonable price and then just sit tight. But if he’s planning something else, he’s now got enough shares to make management nervous and other shareholders listen.
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