Will Motorola Hang Up On Icahn Again?

Shares in Motorola, Inc. (MOT) plunged 19 percent on Wednesday, after the struggling cell-phone maker released dismal results for the 4Q:07 and said it was taking longer than expected for a recovery in demand for its mobile devices.

Shareholder activist Carl Icahn beneficially owns about 3.3% of shares outstanding (as of September 30, 2007 filing)—much of it acquired at prices between $17.73 and $19.80 a share. The billionaire financier has consistently criticized the management of Motorola for its poor financial performance and unsuccessfully ran for a seat on its board in May 2007. He is rumored to be agitating for a break-up, according to traders.

"My significant stock ownership is many times that of the entire board. It represents both my commitment to Motorola and your assurance that I am solely interested in what is best for the Company and its stockholders." ~ Carl Icahn in open letter to shareholders [May 1, 2007].

Throwing good money after bad? Icahn—unlike most of us—can afford to 'double-down' on his gamble. Investors should note that Thursday Fitch Ratings downgraded the issuer default rating for Motorola (to 'BBB' from 'BBB+'), saying that it was skeptical of the company's ability to return operating income margin to double digits over the longer term (because of the need for further restructuring and lower margins in the low-cost models—for emerging markets—that is driving growth).

Given the significant decline in the company's market valuation, we suspect that the stock price will find support at $10.00 a share, helped by the rumored Icahn activity and the potential for aggressive share repurchase activity by management (the Company had approximately $3.8 billion outstanding under its stock buyback authorization as of December 31, 2007).

This is offset, however, by our longer-term concerns that the share-price remains tethered to prospects for growth in the handset segment.

Editor David J. Phillips does not hold a financial interest in any stocks mentioned in this article.