Indian Conglomerate Eyes Motorola’s Handset Unit

As if Motorola’s Greg Brown doesn’t have enough on his plate, the CEO and the company’s board of directors have a new consideration: Interest from an Indian consumer electronics giant, seeking to buy the company’s troubled handset division.

Videocon Group, India’s largest consumer electronics company — with additional plays in oil and gas production as well — made the move late yesterday, according to published reports.

The company did not disclose a potential price for the division, according to reports. Merrill Lynch has said Moto’s flagging handset unit is worth about $3.8 billion — a mere fraction of the company’s $21.67 billion market cap.

Despite recent moves by Motorola brass to get the division back on solid footing, some industry observers suggested the unit might benefit from new ownership.

“What’s good for Motorola’s mobile unit would be to get out from under the thumb of a leadership group that doesn’t fully understand how to successfully operate in the mobile devices space,” Carmi Levy, senior vice president of strategic consulting at AR Communications, told

Representatives from Motorola and Videocon did not respond to inquiries by deadline.

Depending on Brown’s strategy for Motorola’s (NYSE: MOT) handset unit — long a matter of debate for industry-watchers, — the company’s recently minted CEO may view Videocon’s overture as either a miraculous gift or an annoying setback in his plan to get the business in order.

Brown’s latest efforts to reverse Motorola’s spiraling fortunes came last week, when the company unveiled plans to split its business into two.

That move aims to help its handset division gain “clarity of direction” that would enable the No. 3 handset maker to get its slipping business back in line. The split is to be finalized by 2009, the company said.

However, some observers questioned whether the move was designed to make the handset division more appetizing to a buyer.

While rumors have speculated about a number of bidders for Motorola’s handset business, Videocom remains the first potential bidder to have come forward publicly.


For Motorola, such a scenario would present an opportunity to cut ties to what’s long been a revenue drain.

Largely thanks to weakness in handset sales, Motorola’s market value tumbled more than $37 billion during the past 18 months — prompting renewed calls for change from investors like longtime critic and activist shareholder Carl Icahn.

Consequently, it’s uncertain what effect the offer will have on Motorola’s immediate plans for the unit. Rumors about a sale of the division have circulated since Brown took over the company in January, replacing Ed Zander.

That change preceded a wider executive shuffle, with leaders of the mobile division leaving in droves.

Reaching for a piece of the international wireless pie

At the same time, Levy described Videocon’s interest in Motorola as “a fascinating play” that could turn the Indian conglomerate into a top-tier handset maker almost overnight.

“Videocon would be a parent company that wants to make a go of the business,” he said. “I’m convinced Motorola leadership really has not worked in their mobile device unit’s best interests.”

At the same time Videocom moves to grab Motorola’s business, it’s also moving into the service provider space — a rarity for handset manufacturers. The company has nearly two-dozen GSM services licenses throughout India.

Yet Levy added that Videocon might not have what it takes to make such an acquisition succeed. Even barring issues of board and regulatory approval, published reports have indicated that the company, currently valued at $1.9 billion, would have to raise a fair amount of capital to buy the division.

“Acquiring the Motorola brand could leapfrog what is essentially a major regional power into the global league,” he said. “If anything, this is a bold statement of confidence by Videocon in its future prospects for global presence and expansion.”

“But it’s unclear right now whether it has the will and the ability to make the leap,” he added.

Should the company prove unsuccessful or back out of the bid, the move may have a wider impact on India’s wireless marketplace, accelerating the country’s government’s process of granting bandwidth to national mobile players, Levy said.

“Even if Videocon ultimately doesn’t follow through on its expression of interest, it’s served notice to its government that it’s a serious player in the mobile services market,” he said.

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