Motorola announced on Thursday afternoon that its board of directors had approved a plan to split the electronics giant into two firms effective one year from now. Both firms would use the name Motorola and be publicly traded.
One business unit will include the company’s Mobile Devices and Home businesses, and the other will include its Enterprise Mobility Solutions and Networks businesses. Greg Brown, co-chief executive officer of Motorola (NYSE: MOT), will become CEO of the enterprise mobility and networking business. Sanjay Jha, the other co-CEO, will head the mobile devices and home business.
Motorola said the split will take effect through a tax-free stock dividend of shares in the new company. The Mobile Devices entity will hold the “Motorola” trademark and license it royalty-free to the enterprise and network equipment business. The enterprise business will be responsible for Motorola’s current public debt and will be capitalized to achieve an investment grade rating.
“We believe as independent companies, both companies will be best positioned to successfully pursue their respective strategies and opportunities for growth. Both companies will have outstanding leadership teams, leading market positions, use of the Motorola brand and operate in attractive and growing industries,” Brown told a conference call with analysts.
Even though the split is a year away, the company felt letting people know now was the right thing to do. “To the extent we and the board have fully agreed and feel very enthusiastic about it, why wait? So the greater clarity for customers, employees and investors in getting around the necessary alignment in getting the appropriate amount of runway to get the right capitalization and brand utilization, we felt lead time is better,” said Brown.
Funding totals $8 billion
Jha noted the company has $8 billion in cash and equivalents to fund the split. “We believe that we can effect this separation with the balance sheet we have today, and I feel comfortable that capitalization of mobile/home and enterprise will enable us to have operational and strategic flexibility,” Jha told a conference call with analysts.
Jha said Motorola felt this was the time to make the move because it has taken significant cost out of the mobile business unit and it is better able to compete in that marketplace. One area where he is confident is in smartphones. Motorola has a hit in its Droid phone, and Jha thinks Motorola’s smartphone business will grow 40 percent per year for at least two years.
Additional details regarding brand, corporate names and capital structure will be provided in the future as the two firms progress with their plans.