Time for sharp competitive intelligence

Motorola Inc. bowed to pressure from investors Wednesday, announcing a plan to split its struggling cell phone business from other operations to form two separate publicly traded companies.

The widely expected deal comes as the suburban Chicago cell phone maker faces a second straight year of agitation from billionaire investor Carl Icahn, who has become increasingly frustrated with Motorola’s eroding phone sales.

Executives said the move will allow the two companies to better focus on their respective strengths and weaknesses, while accelerating the turnaround plan for the cell phone unit, which has seen its fortunes slip after trend-conscious customers lost interest in the Razr flip phone.

“The creation of the two independent publicly traded companies provides improved management focus and a capital structure that’s more tailored to the individual business needs,” said Chief Executive Greg Brown, who will remain at the helm of the split company’s non-cell phone unit. “And it will provide some improved alignment and agility and will help us going forward.”

Specifics of the deal haven’t been disclosed, but Motorola said its handset business will operate separately from another company offering its TV set-top boxes and modems and its computing and communications equipment.

Schaumburg-based Motorola said it anticipates the transaction will be tax-free, allowing shareholders to own stock in both of the new companies. If the deal is approved by regulators, the two units would be separated in 2009.

Officials haven’t said whether one company or both will retain the Motorola brand name or which company will distribute stock to existing shareholders.

Icahn called Wendesday’s announcement “much delayed and long overdue” and continued to push for the election of his four board members.

“As one of the largest Motorola stockholders, I continue to have concerns about the speed and manner in which a new management team is selected for the mobile devices business and the separation transaction is consummated,” he said in a statement.

“Time is of the essence, and decisive action is required to reposition the Mobile Devices business for success as an independent company,” Icahn said.

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