Breaking Up: Motorola to Splits Into Two Companies

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Motorola (MOT) will split into two companies effective Jan. 4, finalizing the breakup of one of the founders of the U.S. electronics industry.

Motorola is splitting its consumer-oriented side, which makes cell phones and cable set-top boxes, from the side that sells police radios and barcode scanners to government and corporate customers.

Shareholders of record on Dec. 21 will receive shares in both the consumer business, Motorola Mobility, and the professional business, Motorola Solutions.

The breakup is motivated by the desire to present two simple stories to investors, rather than one complicated one.

Breakup Began in 2008

Motorola set the breakup plan in motion in 2008 after prodding from activist investor Carl Icahn. The goal was to complete the separation by 2009, but the economic downturn and the continuing collapse of Motorola's phone sales prompted it to postpone the plan. Motorola announced the new date Tuesday.

One big piece of Motorola won't make it to separation: The company is selling a division that makes network equipment for cellphone companies to Nokia Siemens Networks, a Finnish-German joint venture. The deal is expected to close before the end of the year.

Motorola started out as a manufacturer of car radios in the 1930s. It pioneered the U.S. cellphone industry in the 1980s.

Motorola's cellphone business, which as late as 2007 was riding high on the success of the Razr, is struggling to reshape itself. Once the second-largest phone maker in the world, Motorola is now the seventh-largest and sells fewer phones than either Apple (AAPL) or Research In Motion (RIMM), the maker of the BlackBerry. However, cost-cutting and a focus on smart phones such as the Droid X allowed it to post an operating profit for the July-to-September quarter. It was the first profitable quarter for the division in three years.

On Jan. 4, shareholders will receive one share of Motorola Mobility for every eight shares of Motorola Inc. Motorola Inc. share will then go through a 1-for-7 reverse stock split, as the company renames itself Motorola Solutions. Both stocks will trade on the New York Stock Exchange.

Much Smaller Solutions

The businesses that will become Motorola Mobility had $2.9 billion in sales in the most recent quarter, compared with $1.9 billion for Motorola Solutions. However, the $321 million in operating earnings at Solutions dwarfed the $3 million Mobility made.

Motorola Solutions will stay in Schaumburg. Motorola Mobility will initially be based nearby in Libertyville, Ill., but officials have said that it may later move its headquarters team to San Diego, the San Francisco area or Austin, Texas.

Motorola prepared for the breakup by hiring Sanjay Jha in 2008 to head the handset division and making him co-CEO. He will be the head of Mobility. The other co-CEO, Greg Brown, will head Solutions.

Shares of Motorola, which is based in Schaumburg, Ill., closed Tuesday at $7.66, down 11 cents.


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