William Trent_

Motorola's Warning: Unmitigated Disaster

Well, to start off I'd say everything is a takeover target these days. Google would never want to bother with an "old" style manufacturing company, though. If they do phones they would do the design and contract out manufacturing. But at 6.4x EV/trailing EBITDA MOT easily fits the bill for a private equity buyer, assuming that buyer believes the EBITDA decline that will happen this year will be overcome.

At 11x 2006 free cash flow the enterprise value is implicitly assuming the company can grow at a modest rate (say 2-3% annually) going forward. It is not an outrageous assumption, but first a big decline will have to be recovered. That's where the sticky bit comes in - how long will it take to return to peak sales and EPS, and when they do will it just be another peak or will they be able to continue growing past it?

To me, MOT looks reasonably priced but not compelling. The private equity buyer argument does make sense, though, as they could instill the financial discipline the whole industry needs.