Motorola Settles with Icahn

Motorola avoided a potentially embarrassing showdown with billionaire investor Carl Icahn on April 7, agreeing to seat two of his associates on the company's board and to seek input from Icahn about the future of the Motorola's mobile phone division. The agreement also dismisses all litigation between Icahn and Motorola.

Motorola said Icahn supporter Keith Meister, a managing director of Icahn investment funds and principal executive officer of Icahn Enterprises, and William R. Hambrecht, founder, chairman and CEO of WR Hambrecht + Co., will be nominated to the Motorola board. Meister will begin serving on the board effective immediately.

In addition to adding two Icahn supporters to the board, Motorola also said Meister and Hambrecht may communicate with Icahn—subject to certain confidentiality restrictions—regarding the activities of Motorola, including the possible separation of the company into two independent businesses.

"This is a very positive step for Motorola in that shareholder representatives will have strong input into board decisions affecting the future of our company," Icahn said in a statement with Motorola president and CEO Greg Brown.

Icahn added that separating the mobile phone division from the rest of the company would allow Motorola to avoid "poison pills and staggered boards, both of which, in my opinion, serve to make democracy a travesty in corporate America."

Two Motorolas

Motorola, the nation's third-largest cell phone maker, announced in January another sharp decline in mobile handset sales, resulting in an 84 percent drop in fourth-quarter net income. The company said it shipped 40.9 million handset units in the fourth quarter, a dramatic drop from the 65.7 million units shipped a year ago.

Motorola's mobile devices division represents about half of the company's sales. After introducing the successful RAZR model in 2004, Motorola has struggled to launch another hit cell phone, driving it from the No. 2 spot among dominant handset makers. Nokia and Samsung are now the top two handset manufacturers.

"We look forward to continuing the process we announced on March 26 to create two independent publicly traded companies and we are pleased to avoid a costly and distracting proxy contest [with Icahn]," Brown said.

Last month, Motorola said it was launching a process to create two independent, publicly traded companies. The decision followed a January announcement that the company was re-evaluating its mobile phone unit.

"For many months I have been publicly advocating the separation of Mobile Devices from Motorola's other business and I am pleased to see that Motorola is finally exploring that proposal," Icahn said in a statement in February.