On behalf of lazy investors everywhere, I want to say "thank you" to Motorola
Describing its thinking on the long-awaited cell phone division spinoff yesterday, Motorola laid out a plan of elegant simplicity. One company comprising two very different businesses will be split down the middle into two companies of equal sales size ... with very different business models.
The good business, Motorola Solutions (MS), manufactures workaday wares such as radio sets, handheld scanners, and telecom equipment. Even better, it makes money doing it. With $11.1 billion in annual revenue, MS generates essentially all of the company's free cash flow. In contrast, the bad business that we normally think of when the name Motorola pops up -- the one that sells cell phones (alongside more profitable set-top boxes, and DVRs) -- is Motorola Mobility (MM), which is of equal size, but has continually struggled and lost money on the bottom line.
Motorola goes to zero
With me so far? Motorola Solutions makes money; Motorola Mobility doesn't. A pretty clear distinction so far -- and thanks to management's genius, it's about to get even clearer. You see, in the process of breaking up the company, Motorola will reshuffle its balance sheet to sharpen the distinction between what-will-become MS and MM. Motorola promises to use its $8.5 billion in cash to pay off a majority of its $3.9 billion in debt, then give almost all of the remaining cash to MM. To top it all off, MS will shoulder both companies' existing pension liabilities.
In other words, post-spinoff, MM should have zero debt, and zero pension liability. And it gets better. If all goes well with Verizon's
Zero never looked so good
If all this sounds like a plan designed with the express in-tention of attracting a-ttention from investors -- well, it should. Persuading people to buy into a business that has dropped from a 20% cell phone market share to 3% in just a few years, that has to do daily battle with Research In Motion
Lucky for investors, Motorola's making the investment thesis on this one as simple as humanly possible.