CURIOUS INVESTOR DAVIDROEDER
droeder@suntimes.comFor the last decade, investing in Motorola (MOT) has been about as useful as setting a match to money. The stock was $50 a share in 2000, $30 a share a year later, #20 a share in 2005, and for a couple years hasn’t seen even the $10 level. It closed Friday at $8.38.
Clearly, Schaumburg-based Motorola as presently constructed isn’t working for anybody. It’s a collection of at least four major businesses under a single brand, a strategy that works for others. But in Motorola’s case, the businesses aren’t all top-notch, some have no synergies with the others, and its best-known products, cell phones and smart phones, are chronic money losers. Motorola’s antidote for the situation is coming.
Could it mean that now is finally the time to have a little faith in Motorola? Maybe so if you like a little clarity in your investments.
The company is trying a spinoff that it expects to accomplish in the first quarter of 2011. It will separate the phones unit, the one with the losses but with a turnaround plan in place, and a more stable division that sells equipment to cable companies, into a stand-alone firm to be called Motorola Mobility.
The rest of the company, including its most profitable division, which makes two-way radios and products for private communication networks, would continue as Motorola Solutions. Details on share distribution haven’t been announced.
The “solutions” part is Motorola’s beter half. Morningstar analyst Joseph Beaulieu called it the “crown jewel.” It’s where the company enjoys brand dominance and pricing power with a diverse array of customers. Unshackled from the flashy phones division, it can finally pitch itself to investors looking more for reliable profit margins that for growth.
If you’ ve got the nerve, you can still invest in the phones side, which analysts think will turn a profit starting in 2011. But the research costs are huge, consumers are fickle and competition is intense. One attraction here is that if Motorola’s Android phones prove to be a long term success, this unit will become takeover bait.
Given all this, analysts at Chicago-based Spin-Off Advisors LLC have broken down the various components of the company and conclude that a fair price for the shares is $9.26, implying a premium of 10 percent from the current value.
As the time for the spinoff gets closer, it would be natural for investors to devote attention to MOT and pump up the price on anticipation alone.