Last week Motorola
(MOT) re-announced the company’s planned bisection by early 2011. This time around, rather than simply spinning off Mobile Devices, it will include the Home (MDH) business operations as well. On the other side will stand Enterprise Mobility Solutions and the Networks (EMN) business. This tax-free distribution to Motorola shareholders is expected to create two separate, publicly traded companies. MDH will retain the Motorola brand name but it will license it royalty-free basis to EMN. Each company is expected to retain its appropriate intellectual property and any debt in existence at the time of the split will reside with EMN.
Since this idea was first hatched about two years ago, it's long been argued that such a split is the only way to unlock shareholder value. Many analysts following the company have joined that chorus. The logic is predicated on the assumption that the respective operations of one side are somehow being hampered or held back by the strategy and objectives of the other. Once freed to “do its own thing” or so the fairly tale goes, each will sprout wings and fly.
When I hear the aforementioned tortured logic, I wonder. Does IBM’s
(IBM) semiconductor business constrain their computer services operations? Are Cisco’s
(CSCO) Linksys products a drag on the company’s unified communications products? What impact does Johnson & Johnson’s
(JNJ) Band-aid business have on its medical devices operations? We all know the answer to these questions is zero!
What is it about the talent pool or the culture of Motorola that there's an inability to plan strategically and execute such that diverse operations are able to thrive and grow? Why does anyone think that once the split occurs, the obstacles will magically disappear? Did the demands of EMN cause mobile devices to lose 20% points of market share? Of course not, poor products did.
Motorola management announced on last week’s conference call that there will be no “lost synergies” due to the split. Oh? Let’s see, the radios, flash, and DRAM that reside in a wireless base station have nothing in common with the radios, flash, and DRAM in a handset. I suppose there are no volume purchasing benefits that will be lost as these two product lines end up in different companies. There are probably no benefits to be had by having them manufactured at the same contract manufacturer. Give me a break!
How about we look at the issue from a different perspective? Motorola spent 14.4% of revenue on research and development in 2009. Do you think there were any cellular research expenses that were equally applicable across handsets and the base stations? How about in S,G & A. Motorola currently has a Chief Financial Officer, a General Counsel, and a string of vice presidents of various operations. Will those positions not be needed in both companies? Will the current residents of those positions take salary cuts proportional to the revenue split? You know the answer to that one.
Motorola has burned $92 million of shareholders money over the last two years preparing for the great separation. But from my perspective it solves nothing and is little more than an admission of failure by the board and management.
No positions in stocks mentioned.
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