Investors greeted Motorola Inc.'s decision to spinoff its unprofitable mobile handset division with a suppressed yawn.
The stock price rose 2.7 percent following the announcement on Wednesday (March 26) and fell more than 5 percent the next day to close at $9.50 from $10.02. Motorola's shares remain sharply below the 52-week high of $19.68. Here's why the spinoff news barely moved the stock.
First, the news of the planned spinoff of the mobile devices division was already an open secret. The company announced it was considering such a move two months ago, and billionaire investor Carl Icahn, who had been pressing for the same action, had just dragged Motorola before a Delaware Court in addition to launching a proxy fight for control of the company's board of directors.
A more drastic move by Motorola executives, such as the breakup of the company into more than two companies--along the lines of Icahn's suggestion for a three- to four-way split--could have excited investors; a spinoff of the mobile handset business was really old news.
Furthermore, Motorola's 30-minute conference call to discuss the planned spinoff disappointed many by failing to offer answers to critical questions about the unit's future.
Just about all Motorola president and CEO Greg Brown did during the conference call was confirm the press statement. Other important questions about the proposed company, including its name, capitalization, key executives, intellectual property holdings, market share goals, reorganization and financial structure were left unanswered.
Pressed to justify the spinoff, Brown would only say the action "would help with clarity of direction for employees and customers [and] help attract top-notch CEO candidates."
Brown and company have to do better than this. The separation of Motorola's mobile handset unit into a standalone company does not address the key issue of what the company can do to regain market share lost to competitors like Nokia, Samsung and Sony Ericsson.
Also, spinning off the mobile handset division will not dramatically alter its current product offering or change the perception that Motorola doesn't know how to consistently win and keep customers through a wider set of innovative products.
There are other issues for Motorola to tackle before it can again feel the warm embrace of its current shareholders, potential investors and consumers.
The company must provide detailed information soon on a new chief executive for the division as well as its capital structure, potential debt levels and new product development strategies.
Also, it remains unclear whether the parent company would retain the Motorola brand or assume a new one, leaving the handset business with the older and better recognized though somewhat tarnished name.
Brown said the company is still reviewing issues related to the brand and hinted it may be months before the results are announced.
The longer Motorola takes to provide answers to questions like this, the bigger the headaches the company will face convincing investors it can successfully put its wireless handset business on a growth path.
Until then, investors will likely stay on the sideline as Motorola has problems retaining key marketing, engineering and design employees.