Saturday, May 3, 2008

Corporate Raider Gets Gonged (Finally!)

Anyone following Carl Icahn's career knows he buys a 5% of an American company, strips out their cash, and then forces management to pay him off to get rid of him. Usually the company is destroyed in the process (see TWA). That business model is dead. Read on to see what happens when you don't invest in new product.

Icahn's Motorola Morass
Joan E. Lappin, Gramercy Capital 05.03.08, 11:37 AM ET

What if you held a party and nobody came? What if you held a sale and nobody bid? That is exactly the situation at Motorola.

About a year ago, Carl Icahn bought 3.6% of the company's stock, either directly or through long-term options, for about $18.36 per share, or almost twice its current price. He was unsuccessful in securing a board seat last April in his proxy battle against then incumbent management. He could have gotten out then with not much of a loss. The market gods were trying to tell him something, but he failed to hear the message.

Icahn sought to "monetize" the Motorola (nyse: MOT - news - people ) mobile device business and have representation on the board of directors. Over the last five quarters or 15 months, Motorola's handset share has fallen from a RAZR-driven peak at the end of 2006 of 66 million units and a 23% share to a recently reported low of 9.4%.

Nobody wants to pay money for this tarnished brand. Competitors are finding that they can just steal the share with more exciting new products than the brain-drained Motorola can muster to market. Just check the inserts in your Sunday paper and see which brands AT&T (nyse: T - news - people ) and Verizon (nyse: VZ - news - people ) are offering up these days. It's Samsung, LG, Apple (nasdaq: AAPL - news - people ) and BlackBerry from Research in Motion (nasdaq: RIMM - news - people ). Just about the only ads you'll see for Motorola these days are for a free phone or one at a bargain basement $29 price or a buy-one-get-one free deal.