Billionaire Carl Icahn is like a virus that attacks companies when they're down but not out. The latest enterprise to be socked by a bad case of Icahnitis is Motorola Inc., the world's second largest cell phone seller.
Motorola has all the symptoms. The investor initially acquired a small stake and is now incrementally increasing his holdings (Icahn is Schaumburg-based Motorola's sixth largest shareholder with 2.7 percent of the company). He's publicly questioning management's competence and strategic vision. In addition, Icahn is fighting to get a board seat, where presumably he'll press for a massive reorganization or sale of the company. All this in the name of boosting the share price.
I realize that maximizing shareholder value is suppose to be a top priority for those running publicly-owned companies and that sometimes investor agitation is necessary to shake-up an executive suite. Nonetheless, in this situation, I'm rooting for Motorola management instead of investor Icahn.
Why? Because, in the long run, CEO Ed Zander's turnaround tonic will be better for shareholders (and employees, vendors and this community) than Icahn's down and dirty fix. That's not to say that Motorola isn't in the soup right now. After feasting on the success of its hot-selling RAZR phone, Motorola is no longer the "cool" phone maker that Zander thinks it should be. Motorola has lost it's design edge and it's phones aren't offering the array of multi-media and interactive wonders that people want when they upgrade.
To his credit, Zander realizes this. In a recent conversation with Wall Street analysts, he conceded there were troubles and vowed to quickly make improvements in design, distribution and pricing.
While not saying it outright, Zander is also hoping to buy some time with Icahn by accelerating a company stock buy-back plan, acquiring the remaining $2 billion of a $4.5 billion repurchasing program.
Zander is a controversial CEO. He's animated to the point of restless and sometimes says things that get him in trouble with his industry peers. In my view, he got too much credit for Motorola's comeback a few years ago and is getting too much blame for its recent fall from grace.
Moreover, since he arrived in 2004, there's been speculation that Motorola is just a pit stop and that he really wants to run a Silicon Valley heavyweight.
That said, Zander is also a very smart, highly-competitive guy. The last thing he wants to do is leave Motorola as a loser. There's a more tangible motive: His 2006 compensation package is worth $13.2 million, most of it tied to stock options and performance. No Zander turnaround, no big Zander payout.
Icahn, however, wants the money now.
What Motorola has--and what Icahn lusts for --is a large portion of the estimated $11 billion on the balance sheet. Icahn says that's way too much cash in the vault and if management wants to hold money, it should be running a money market account not a global company.
His solution?
Pass out the dough via bigger stock buybacks, which should also help temporarily raise the share price, and give Icahn (and many of Motorola's other shareholders) a premium price for their stock. Icahn intends to make this very case at Motorola's May 7 annual shareholders' meeting. (Motorola stock is trading in the $17 range, off substantially from its 52-week high of $26.30 per share.)
In the end, Icahn usually gets a big pay day, as he did after making a run last year at media giant Time Warner Inc., which appeased him by increasing its share buyback from $12.5 billion to $20 billion. That company also pledged to step up cost-cutting and spin off a bunch of magazines and other properties.
I'd argue that the Time-Warner approach would prove detrimental to Motorola. The company has already endured years of restructuring and brutal cost cuts. There's not a lot of fat to hack.
Yes, it does have $11 billion in cash. And while that may sound like a ton of money, it really isn't that much for a technology company, which tend to have a higher cash burn. The bulk of those funds should be plowed back into research, development and smart acquisitions--not to make a billionaire like Icahn even richer.
Motorola needs to grow, not retreat.
Nevertheless, Icahn is a fact of Motorola's life.
The expedient, albeit distasteful remedy, will likely be finding a way to pay off Icahn, so Motorola can focus on turning around its ailing fortunes.
Any other prescription--whether its stalling for time or fighting him in court--will only damage Motorola and may even spawn a dismantling or sale of entire company.
Feed a cold, starve a fever is the rule of thumb for regaining one's health. For Motorola, however, Icahnitis is an infection that has to be fed or the heat will only increase.
