Motorola, Icahn Pleased Following Dispute Settlement

Electronic Arts (ERTS) took its offer to Take Two’s (TTWO) shareholders and Microsoft (MSFT) is on the verge of doing similar with Yahoo (YHOO). Monday, Motorola (MOT) narrowly avoided adding another major proxy fight to the quarter’s tally. Subject to an agreement announced Monday, dissident board member Carl Icahn and the rest of Motorola’s board of directors agreed to settle their ongoing battle over board seats and control (Press Release).

In exchange for dropping litigation (filed to gain access to corporate documents) and for his withdrawing a proxy fight for four board seats, Motorola agreed to endorse two of Icahn’s nominees to the board. The Illinois based company also agreed to both refrain from adding anti takeover provisions like poison pills and a staggered board to the spin-off of the company’s mobile phone business; and to insure Icahn (or his board representatives) will have a significant voice in decisions regarding the spin-off (including the hiring of a CEO).

These decisions regarding the future handset business are particularly noteworthy. In the fourth quarter, Motorola earned only a paltry $100m (4 cents a share). That was a dramatic decline from the $623m earned a year earlier. Still, many believe, despite failures to remain current after the success of the Razr product line, that Motorola mobile business has significant potential under the hands of capable and focused management. The company, they believe, is not only storied (a team led by Martin Cooper at Motorola revealed the first prototype cell phone, The “Dynatac,” in 1973), and widely known as a brand, but with more than 80% of US households owning at least one cell phone and 3 billion cell phone accounts around the globe, positioned to remain significant in a monstrously large market.

Whoever controls the spin-off will have significant impact on any possible turnaround. The settlement insures Icahn will have a major voice. The lack of takeover provisions also insures a playing field with ample opportunity for him to acquire more of the company once it's spun off and independent.

In a statement, Carl Icahn said, "This is a very positive step for Motorola in that shareholder representatives will have strong input into board decisions affecting the future of our company."

He also shared his satisfaction on shareholder provisions saying: " the Motorola Board has also taken an important step forward for corporate governance in that the separated company which includes Mobile Devices will be essentially free from poison pills and staggered boards, both of which, in my opinion, serve to make democracy a travesty in corporate America."

Motorola’s CEO Greg Brown was similarly pleased to have the fight resolved.

The specifics terms of the agreement:

•Motorola’s Board will use “reasonable best efforts” to cause the election of Icahn’s two nominees; one of whom will begin serving immediately.

•For as long as Icahn’s candidates are on the board, they will be members of any committee assembled to handle the spin-off of the mobile devices business.

•The board will “seek the input of the Icahn Designees and Carl Icahn regarding all significant matters (and all matters that Mr. Icahn reasonably believes are significant matters and indicates such to the Board)” in connection with the spin-off. This includes the search for a Chief Executive Officer and the establishment of the Board of Directors.

•If, at the time of the spin-off, Icahn owns at least 90% of the Motorola stock that he currently owns today, the new company will not stagger the election of its board of directors or incorporate any kind of poison pill takeover provisions into its formation documents.

Keith Meister, the first of Icahn’s candidates, and a managing director of Icahn’s investment funds, will begin serving on the board effective immediately. William (“Bill”) Hambrecht, founder of investment banks Hambrecht and Quist and WR Hambrecht and Co., will be added to the slate as Icahn’s other nominee. His role will begin after official election at the company’s annual meeting.

Icahn’s assorted funds own 144,562,000 shares of Motorola common stock, representing approximately 6.4% of Motorola’s outstanding shares.