Icahn sues Motorola, questions CEO’s qualifications

Carl Icahn encourages stockholders to elect four individuals to Motorola's board and questions CEO Greg Brown's qualifications.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 3/24/2008

Carl Icahn is suing Motorola Inc in his latest attempt to force change at the struggling company.

With the Delaware filing, Icahn -- the billionaire Wall Street raider who previously launched a failed attempt for a board seat at Schaumburg, Ill-based Motorola -- is seeking company documents that he believes will allow shareholders to “investigate whether and to what extent the board of directors of Motorola failed in their duties as directors in supervising management and setting policy and direction of Motorola.”

The materials that Icahn is seeking include, among other items, any board and committee minutes and documents relating to the service and selection of Motorola’s senior officers; the prospects or strategy of Motorola’s mobile devices business; and the realignment of its business regarding mobile devices, including the potential spin off of the business.

“Over the past 12 months the statements and predictions of Motorola’s management and the board about mobile devices business have too often proven to be wrong,” Icahn said in a statement. “We want to ascertain what the board could have done in the exercise of its fiduciary duty to assure Motorola stockholders that Motorola’s statements and predictions were not incorrect and would not provide Motorola stockholders with an inaccurate perspective on the prospects for the mobile devices business.”

Indeed, much of Icahn’s disapproval of Motorola’s management has to do with its mobile devices unit, which has recorded plummeting sales since it launched its Razr handset, pulling down Motorola’s overall profitability.  Company CEO Greg Brown announced Motorola was considering spinning off the unit in January, less than a month after taking over for former CEO Ed Zander.

In a letter to shareholders today, Icahn said he would support the unit spin off and questioned Motorola’s management’s ability to successfully run the business.

“2008 was supposed to be a successful and profitable year in mobile devices with the potential to achieve 10% operating margins in the near future. Instead, the results are a stockholders’ nightmare,” he said.

Adding further insult, Icahn questioned if Brown is fit to run the company, asking what “qualified” Brown to be the CEO. “He certainly -- as far as I can ascertain -- has no in-depth experience or knowledge concerning the mobile devices business, which was and is by far the major problem for Motorola,” Icahn said in the letter.

Before stepping into Zander’s shoes, Brown was the company’s president and COO. Prior to that, Brown headed four different businesses at Motorola and led the $3.9 billion acquisition of Symbol Technologies, the second largest transaction in Motorola’s history. Motorola credits Brown with returning the automotive business to profitability, while also leading the divestiture of that business which was sold to Continental for $1 billion.

Icahn further encouraged shareholders to elect Frank Biondi, Jr., William R. Hambrecht, Lionel C. Kimerling, and Keith Meister to Motorola’s board at the 2008 annual meeting of stockholders in May. Icahn first suggested these individuals be elected to Motorola’s board in February.

“We believe that Motorola’s board and its ever-shifting management team have proven themselves unable to fix Motorola. Their oft repeated and ultimately empty promises of better times ahead leave us doubting that they either have, or ever had, any real handle on what Motorola is doing and where it is heading,” he said.

If the spin off and board changes go through, Icahn believes shareholder value can return to the company.

“As we all are painfully aware, over the past 18 months, the market value of Motorola has dropped by over $37 billion. More than $17 per share of stockholder capital has vanished under the ‘guidance’ and ‘leadership’ of the current board,” he said in the letter.

“Last year I argued that Motorola needed true stockholder representation on the board; unfortunately, we lost that battle in a close election. Motorola’s board and management made enough empty promises to convince stockholders to give them another chance to get it right. They didn’t. What we got instead was a year of revolving-door executives, a leadership vacuum, and accelerating deterioration at Motorola’s mobile devices unit.” 

Icahn’s statements come just more than two weeks after he increased his stake in Motorola to 6.3%. They also follow significant management changes, as the company increasingly sources executives from the private equity realm.

Motorola could not be reached by Electronic News for immediate comment.