Icahn’s Moto Struggle Not Much of a Tug-of-War

The chieftan of corporate raiders was on CNBC this afternoon, talking about how he thinks Motorola (MOT) should spin-off its handset business, part of Carl Icahn’s vicious proxy battle with the beleagured handset maker.

Or maybe not so vicious. James Kelleher, who follows Motorola for Argus Research, opines that there’s not much of a tug of war, really, behind all the posturing. He points out Moto management has basically done what Icahn’s asked to date, and may well be leaning in his direction even now.

“What’s most interesting is that he’s been sniffing around the stock for over a year, and when he first came to Moto, he wasn’t talking about operational changes or structural changes; he simply wanted better use of cash.” And that’s what Moto did, notes Kelleher, taking its $15 billion in cash back then and using $4 billion to buy industrial equipment maker Symbol Technologies, and doing a huge share repurchase, reducing cash to $9 billion.

“Now he’s actually going after operational stuff, talking about a spin-off the handset business,” Kelleher says of Icahn. “And once again, management is doing what he asked: a month ago they said they were considering all strategic options.”

“So, it’s not like there’s a great tug of war here,” concludes Kelleher.

(You can read here Icahn’s filing with the Securities & Exchange Commission today describing his suit against the company in a Deleware court demanding release of documents pertaining to the handset business.)

So what’s behind the drama? Well, Kelleher thinks Icahn just picked a slow news day, perhaps — “No banks blowing up” — to make his plans get attention because he really wants his nominees to sit on the Motorola board to make the changes, whatever they are, when they’re made. With a mere 6.5% of Moto stock, though, winning the proxy vote may be beyond Icahn’s grasp, even if management is already acquiescing to Icahn’s vision.

And what does Kelleher think Moto should do? Form a joint-venture with a large Asian tech company that would give Moto access to exploding cellphone sales in China and elsewhere, much as Ericsson (ERIC) paired its handset business with Sony (SNE). Huawei is one name that comes to mind for Kelleher. “What they need to do is align themselves with an up-and-coming brand in Asia.”

No doubt about it, though, Moto’s in a pickle. The firm lost its head of worldwide distribution just a short while ago. “This is a particularly bad time for Moto’s handset business to be rudderless; you need to get your handset business lined up now for the fourth quarter, when 40% of phones will be sold,” says Kelleher. He has a Hold rating on the stock.

Moto shares today are up 5.2% at $9.73.