Motorola, Inc. (MOT) said it has reduced the time frame for its plan to separate handset and cable set-top box businesses Motorola Mobility Holdings, Inc. from the company to January next year.
The company's board has approved the separation of Motorola Mobility Holdings and the subsequent reverse stock split of shares of Motorola common stock.
Previously in July, Motorola had filed an initial Form 10 Registration Statement with SEC regarding its separation. The Schaumburg, Illinois-based Motorola operates in three segments: Mobile Devices, Connected Home, and Enterprise Mobility Solutions.
The mobile devices and connected home businesses will be served under the new banner Motorola Mobility, while enterprise mobility solutions and network businesses will function as Motorola Solutions.
A sale of the majority of the networks business' assets to Nokia Siemens Networks B.V for $1.2 billion cash is expected to be completed in early 2011. If the networks sale is completed prior to the distribution then Motorola Solutions will be comprised solely of enterprise mobility solutions.
Motorola's networks infrastructure business provides products and services for wireless networks, including GSM, CDMA, WCDMA, WiMAX and LTE. The equipment division makes the gear used to operate telecommunications networks, and has been on the block since Motorola decided two years ago to split up the company into two.
Billionaire investor Carl Icahn has been arguing since early 2008 that Motorola would be worth more if separated into parts. There were reports that Motorola intended to buy back most of its debt and provide $3 billion to $4 billion to the new company. Motorola would also free the cellphone company of pension liabilities and most other obligations.
For Motorola Solutions, the company has provided basic historical annual income statements and given 2011 guidance. Also the management has stated that Motorola Solutions will have $5.3 billion in cash and $2.9 billion in debt as well as bear the pension liabilities ($250 million to $300 million in 2011).
In a joint statement, Greg Brown, Motorola co-CEO and CEO of Motorola Solutions, and Sanjay Jha, Motorola co-CEO and CEO of Motorola Mobility, said: We look forward to taking advantage of the opportunities before us as we begin the new year as two independent, publicly traded companies.
The separation of Motorola Mobility would be completed through a tax-free dividend involving the distribution of all Motorola Mobility common stock held by Motorola to its stockholders.
The distribution will be made ahead of the market open on Jan. 4, 2011 to Motorola stockholders of record Dec. 21, who will receive one share of Motorola Mobility common stock for every eight shares of Motorola common stock held.
Based on the approximately 2.349 billion common shares of Motorola outstanding on Oct. 2 and applying the distribution ratio, about 294 million shares of Motorola Mobility common stock will be distributed to Motorola stocholders.
Following the distribution, Motorola will effect a 1-for-7 reverse stock split of Motorola common stock, prior to the market open on Jan. 4. Motorola, Inc. will change its name to Motorola Solutions, Inc. and expects to change its ticker from 'MOT' to 'MSI'.
Motorola said Greg Brown will be president and chief executive officer of Motorola Solutions. Following the separation, both companies will continue to use the Motorola brand. Motorola Mobility will own the brand and license it royalty free to Motorola Solutions.
Brown said on Monday at the unit's first investor conference that he expects revenue growth of 4 percent to 5 percent in 2011 and set a long-term growth target of 5 percent to 8 percent.
The target is for a slower growth rate than Motorola Solutions' target for growth in a 7 percent to 8 percent range for 2010 as this years projected revenue of $7.7 billion to $7.8 billion, looks unusually strong in comparison with very weak 2009 sales because of economic weakness last year.
Motorola Solutions said revenue at its proprietary iDen network equipment business would fall to $300 million in 2011 from $400 million in 2010.
Motorola's stockholders authorized the board to implement the reverse stock split at a special meeting of stockholders held on Nov. 29.
Motorola Mobility common stock is expected to begin trading on a 'when-issued' basis on the NYSE under 'MMI WI' (when-issued) ticker on Dec. 17. On Jan. 4, Motorola Mobility will begin trading 'regular way' under the symbol 'MMI'.
Motorola expects to fund Motorola Mobility with up to $3.5 billion of cash and cash equivalents comprised of an intitial contribution of $3.2 billion of cash, and a deferred contribution of $300 million of cash. Motorola Mobility expects the full $300 million of deferred contribution to be received within two years from Jan. 4.
On Jan. 4, Motorola Mobility expects to have about 21,000 employees reflecting the addition of a portion of thos who were historically shared corporate employees with Motorola.
Motorola said Sanjay Jha will continue to lead Motorola Mobility, and Marc Rothman will continue as chief financial officer of Motorola Mobility.
In Mobile Devices business, while the overall global mobile device market will remain intensely competitive, the company expects annual growth in total industry mobile device demand over the next several years, particularly in smartphones.
In August, Carl Icahn boosted his holding in Motorola to about 232.23 million shares, representing 9.99 percent stake. Icahn became the largest shareholder of Motorola, holding more shares than Dodge & Cox, which held 229.82 million shares as of March 31, 2010.
Motorola Solutions has a stable business with moderate growth and margin expansion, but both appear to be more in 2012-plus than in 2011. Motorola Mobility is looking at a tough first half of 2011 due to the launch of CDMA iPhone, said Peter Misek, an analyst at Jefferies & Co.
We are unclear how the forward non-GAAP adjustments will be split. Motorola Solutions could use the tax shield but Motorola Mobility greatly desires to demonstrate profitability. We are also unclear how debt and amortization will be allocated. As a placeholder, we have assume a 50-50 split for both metrics, said Misek.
Our first take is that we think consensus is pricing in about $23 price ($7 billion) market cap for Mobility and about $34 price ($11 billion) for Solutions, Misek added.
Motorola Mobility will own about 24,500 patents and patent applications, worldwide. Motorola Solutions will have a strong IP portfolio with more than 6,700 granted patents and 3,500 pending patents.
Motorola closed Tuesday's regular trading session down 1.42 percent at $7.66 on the NYSE, while in after-hours the stock rose 0.91 percent to $7.73.