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Tickers in this Article: MOT, NOK, GE, TYC
Motorola Inc. (NYSE:MOT) grabbed investors' attention this week when the company announced a plan to split itself into two. With the stock in the doldrums, a spinoff of the company's mobile device business might deliver a temporary boost to the shares. But I'm not convinced it's the way to keep them off the ground.

There are all kinds of reasons for spinoffs. The two biggest are transparency and focus. Investors get clearer information about a large company's individual business divisions; at the same time, spinoffs separate businesses that don't make sense being under the same ownership.

Motorola is Hardly General Electric
Admittedly, from an investor's perspective there is no such thing as too much transparency. But upping the information quality of Motorola's financials doesn't necessarily call for a bust-up. We are not talking about a corporate hodge-podge like General Electric (NYSE:GE) or Tyco (NYSE:TYC) On the contrary, Motorola has discernible businesses; each one's performance is fairly well disclosed. (To learn more, check out Conglomerates: Cash Cows Or Corporate Chaos?)

Moreover, advantages exist for keeping Motorola's mobile device business clumped together with its remaining home & network mobility business, which sells television set-top boxes, modems and network infrastructure, and its enterprise mobility unit, which sells computing and communications equipment for businesses. They share a lot of the same core patents and technology.

Motorola Needs Innovation, Not Distraction
Dividing expenses like R&D and the cost of maintaining a global presence would add to the overall costs of doing business, without adding any revenue. What's more, drastic cost cuts to make a standalone handset business more attractive for spinoff investors, will only detract from the business needs most - phones that get customers excited.

Indeed, Motorola has had no luck repeating the success of its Razr, launched back in 2003. Thanks in large part to stiff competition from the likes of Nokia (NYSE:NOK) and Sony Ericsson. Motorola handset sales dropped 38% between the fourth quarter of 2006 (7.8 billion) to the fourth quarter of 2007 (4.8 billion). The unit also lost $388 million in the last quarter of 2007. Motorola's share of global cell-phone unit shipments dropped from 22% in 2006 to 12.4% last year. The effort needed to do the spinoff may only increase the turmoil, and by the time a deal is done the unit's market share could shrink even further.

Valuing Breakup Value
Of course, sum-of-the parts analysis supplies a rationale for the spinoff, and for my valuation of the overall company. Motorola's Home and Networks Mobility business, which saw profits and margins shrink this year, is worth about $8 billion, assuming a valuation multiple of 10-times operating profits. Meanwhile, the Enterprise Mobility group is worth about 1.3-times sales, or about $10 billion. The Mobile Device business, I believe, given its dismal past performance and shaky future, ought to be valued at 0.6 times 2008 revenues or about half that of market leader, Nokia. On that basis, the device unit is worth about $7 billion.

Once you add the $4.3 billion net cash on Motorola's balance sheet, all told the whole company's equity is worth more than $29 billion, or about $12.50 per share. That compares to a share price of $10. (To learn more about these calculations, check out Use Breakup Value To Find Undervalued Companies.)

Bottom Line
I doubt the discount will be sufficient to attract the kind of attention needed to rekindle the stock in the short-to-medium term, especially given the uncertain outlook at Motorola's device business and weakening fundamentals facing the handset industry as a whole.

Moreover, it's still unclear how Motorola's cash and debt will be allocated in the break-up, how much additional capital will be required from investors, who will manage the standalone device unit, or which company will get the rights to the Motorola brand name. To experience meaningful upside from a spinoff, investors might have to wait a long time before the process is completed.

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