Motorola's Break Up: Is That the Right Move?

Motorola announced on Wednesday that it's planning on splitting up into two publicly traded companies, spinning off its money-losing mobile device business from its growing broadband and mobility solutions business. CEO Greg Brown said on a conference call this morning that having two independently traded companies would unlock value for shareholders.

Motorola's (MOT) stock is down nearly fifty percent over the past year, as Motorola sales have slid for four straight quarters. The company's Razr phone was a huge hit when it debuted back in 2004, defining a category of super lightweight phones. But now Motorola phones haven't been able to keep up with Apple's (AAPL) iPhones.

So what really prompted this move? Brown said the company evaluated this solution independently, but there's no question that pressure from activist Carl Icahn--the company's second largest shareholder--played a role.

After a dramatic drop of handset sales last year, Icahn bought up shares and waged a proxy battle for a seat on the board. This year Icahn has nominated four directors for the board, and this week sued the company for access to records on the handset business. The board offered Icahn two seats, which he nixed, so we'll see how many seats he walks away with after the shareholder meeting in May.

What does Wall Street think? The stock got a bit of relief on Wednesday--up just over two percent last time--mostly because investors are thrilled the company is making a change. But I'm hearing a lot of concerns that this isn't the right move and could perhaps cause more problems for the company.

There's a lot of "wait and see." The company is looking to hire a CEO for the mobile devices unit and there's hope that new CEO could put the company on track. But the handset business is so challenging, Pacific Crest's James Faucette tells me he thinks this will cause more problems than it'll fix, pointing out that there's no successful model for a stand-alone company devoted to making handsets.

If the deal does go through, it'll be in 2009 as a tax-free distribution to Motorola shareholders. The next big milestone? The company's May 5th annual meeting.