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When a letter from Carl Icahn landed in the mailbox of Motorola’s corporate secretary on Monday, it only added to the woes of the US telecommunications equipment maker and Ed Zander, its chief executive.
The company’s market value had dropped nearly 30 per cent since October, and a price war over the holiday season forced a profits warning early in January.
Now Motorola will also have to defend itself against attacks from one of the most high-profile activist investors in corporate America.
Mr Icahn’s challenge to Motorola appears so far narrow in its scope and modest in its ambitions. Mr Icahn only owns a 1.4 per cent stake in the company, and is only seeking one seat on the board, for himself, with no ability to expand his slate of proposed directors.
He has also indicated that his main gripe with Motorola relates to its financial structure rather than any operational failings by Mr Zander.
Mr Icahn is seeking an accelerated share buy-back as a way of putting Motorola’s $6.9bn in adjusted net cash to work, but is not calling for the ousting of Motorola management, or a break-up of the company.
However, Mr Icahn’s slim agenda might expand over time, say people who have followed his past campaigns.
“He doesn’t establish any position unless he has a very well thought out strategy,” says Randy Lampert, co-head of the shareholder activist group at Morgan Joseph, the investment bank. Mr Lampert said Mr Icahn could very well be planning to push for a break-up of Motorola into its various businesses.
The most obvious model for Mr Icahn’s Motorola approach is the stance he took at Time Warner in 2005. Although that fight is remembered for Mr Icahn’s dramatic calls for the firing of Dick Parsons, Time Warner’s popular chairman and chief executive, and his plan to split the conglomerate into four smaller parts, his initial approaches to Time Warner were much less ambitious.
“Mr Icahn’s tactics are very fluid and he always reserves the right to switch tactics in the middle of a fight,” said a person who was closely involved in the Time Warner proxy fight.
“The initial demands on Time Warner were not very aggressive, they just became more aggressive as Mr Icahn’s tactics changed,” the person said.
Mr Icahn launched his Time Warner campaign quietly, revealing in regulatory filings in August of 2005 that he owned a tenth of a per cent of Time Warner shares.
He then quickly got the backing of other hedge funds to buy $2.2bn of shares in Time Warner – still a tiny proportion of total shares – and said the company should sharply increase its share buy-back programme to $20bn and spin off the cable business.
Although Mr Parsons maintained a friendly approach and met Mr Icahn, the veteran activist quickly increased his demands on the group, asking for seats on the board and later hiring investment bank Lazard to analyse Time Warner and come up with a plan to unlock value.
Mr Icahn was never able to persuade enough Time Warner shareholders to publicly back him.
However, Mr Parsons did agree to increase Time Warner’s share buy-back programme to $20bn.
The pressures from Mr Icahn also allowed him to push forward other plans to get rid of peripheral businesses and to cut costs. People within the company have compared Mr Icahn’s presence with having a “gun to your head,” in that it focused their minds.
The initial market reaction to Mr Icahn’s move on Motorola is likely to have been encouraging for him, with shares rising 7 per cent on the first day.
This showed that many Wall Street investors believe there is hidden value in the company. “It’s a positive sign of market support, but doesn’t necessarily mean his campaign will be successful,” says Mr Lampert.