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Icahn seeking greater control of Motorola

Thu, 03/01/2007 - 7:39am
Brian Santo, CED

Motorola Inc. is officially on notice that Carl Icahn and three companies that bear his name together plan to purchase up to $2 billion worth of the company's stock. Icahn is an investor activist who typically pressures corporate management to increase shareholder value.

From the corporate standpoint, he sealed a reputation as a troublesome investor with his takeover of TWA in 1985 and his subsequent management of the company. The airline, already experiencing difficulties, descended into bankruptcy in 1992 under his direction. He was ousted as TWA chairman in 1993.

Since then he has invested in one company after another, typically seeking board positions in order to exert managerial control over direction and policy. He bought a 3.3 percent stake in Time Warner and began agitating for the sell-off of AOL. In 2006, he suggested breaking up the company, instigating the subsequent adoption of cost-cutting measures and a plan to buy back up to $20 billion of stock.

He is pursuing a similar course with Motorola. Icahn already holds 1.4 percent of Motorola stock, making him one of the company's largest single investors. He claims Motorola stock is undervalued, is insisting Motorola management buy back stock, that it take on more debt (which currently stands at about $4.4 billion), and is demanding a seat on the board.

In 2006, Motorola's stock price began at about $24 a share, dipped to about $19 mid-year, climbed above $25 in the fall, and had been declining since.

That Motorola's stock price through the fall had risen to such heights no doubt held off Icahn, but the company's Q4 results, specifically those associated with Motorola's cell phone business, were disappointing. The company had cut prices on its popular Razr line of phones to win market share, which naturally cut into margins.

The price of Motorola shares had sunk to $18 until Icahn announced his intentions to strengthen his position in the company, driving the stock up above $19 in today's trading.

Simultaneous with Icahn's announcement, two of Motorola's 13 board members said they will not run for re-election later this year. The two are Indra Nooyi, who is scheduled to become chairman of PepsiCo, and Laurence Fuller, who is one year shy of Motorola's mandatory retirement age of 70.

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