Motorola, Icahn agree to end proxy battle

Motorola Inc. said Monday it has called a truce with billionaire activist Carl Icahn that settles a lawsuit while putting some of his colleagues on the board of directors.

This may not sound like much has changed for mobile phone users, but it could in the future. Whatever happens on the board often trickles down to the type of phone in your hand.

But whether Icahn's influence will necessarily turnaround Motorola's troubled mobile devices unit any faster is anyone's guess.

"If Icahn can constructively help a meeting of the minds, it can be mutually beneficial," said Mark McKechnie, telecom analyst with American Technology Research in San Francisco. "They've put down their weapons."

Icahn, who owns more than 6 percent of the Schaumburg company's stock, could now more easily influence Motorola's decisions from the inside. He wasn't able to do that successfully last year when he lost his own bid for a board seat during a heated proxy fight, at which time he called for former CEO Ed Zander to resign. Zander eventually did late last year.

Icahn, known for raiding other companies by buying up shares and pressuring boards, also filed a lawsuit against Motorola last month seeking documents related to decisions made regarding the mobile devices business. Motorola decided to settle the suit by agreeing to add two Icahn appointees.

William R. Hambrecht, founder and CEO of WR Hambrecht & Co. and co-founder of Hambrecht & Quist, as well as Keith Meister, managing director of the Icahn investment funds and principal executive officer of Icahn Enterprises, will be nominated. In addition, Meister has been appointed to serve on the board, effective immediately.

As a result of the appointments, Icahn agreed to drop his lawsuit. Motorola believes the settlement will save money in the long run instead of a protracted proxy battle and court fight.

"We are pleased to have reached this agreement with Mr. Icahn," said Motorola spokeswoman Jennifer Erickson. "We believe that this matter has been resolved in a manner that serves the best interests of our shareholders and prevents a costly and distracting proxy contest. We and Mr. Icahn share a common interest in positioning all of our businesses to deliver and enhance shareholder value."

Erickson declined to estimate how much Motorola stands to save in legal costs, or how much last year's proxy battle cost.

Icahn did not respond to inquiries, but instead issued a statement that said he was pleased with the results.

"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," said Icahn.

"In addition, the Motorola board has also taken an important step forward for corporate governance in that the separated company which includes mobile devices will be essentially free from poison pills and staggered boards, both of which, in my opinion, serve to make democracy a travesty in corporate America."

Icahn's board representatives may seek greater urgency in turnaround efforts. But that turnaround may take time and hinges more on lowered costs than it does by strategic action by the board, said Rick Franklin, telecom analyst with Edward Jones in St. Louis.

"I don't think this is a major precedent," said Franklin. "Motorola's share price weakness and poor operational performance coupled with the large ownership Mr. Ichan has in the company created a unique set of circumstances that resulted in (this) announcement."

Analysts believe the settlement with Icahn will allow the billionaire and his colleagues to put more pressure on Motorola. But they still need to work together to get the mobile devices business profitable again.

"While Icahn board representation may add to oversight pressures for management, the executional challenges must be overcome at lower levels of management," Franklin said.

Still, Icahn is a businessman interested in making money. He's been able to leverage his concerns of the immediate need for shareholder return, said David Weissman, senior telecom analyst with Zacks Investment Research Inc.

"We viewed the agreement as a positive step, eliminating potential shareholder lawsuits and other distractions, but more importantly enabling management to focus on execution of its newer strategic plan," Weissman said.

Wall Street wasn't all that impressed. Motorola shares closed at $9.84, up 17 cents, or less than 2 percent.