(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Robert Cyran
NEW YORK, Sept 17 (Reuters Breakingviews) - Motorola has
been the corporate breakup that keeps on giving. Splitting in
two early last year resulted in Google (GOOG.O) buying its
cellphone operations for a chunky premium. Motorola Solutions
(MSI.N), its emergency communications arm, has done even better.
Moreover, the $14 billion company looks poised to buy back a
third of its stock without much strain.
The early 2011 split was a textbook example of the benefits
of corporate focus. Motorola Mobility held large numbers of
patents in mobile computing as a result of the company’s long
history in phones. This focused firm became an attractive prize
in the battle to create the dominant standard for smartphones.
Google snatched it up for $12.5 billion.
Motorola Solutions’ stock is up nearly 40 percent since the
split. The company run by Greg Brown, along with rival Harris
(HRS.N), has a lock on the business of building emergency
communications systems for local and state governments. These
clients are reluctant to try new vendors, and equipment must be
backward-compatible. That business is expanding slowly, but
Motorola also makes mobile systems for companies like UPS
(UPS.N) and FedEx (FDX.N), an area which is growing faster.
Overall, the company reckons it will increase revenue by about 7
percent annually over the next few years, and it’s on track to
throw off about $1 billion of free cash flow this year.
While Motorola isn’t especially cheap at 14 times estimated
2013 earnings, it has lots of cash to distribute to investors.
Moreover, it has a good record of doing so. It has been steadily
reducing its hoard by repurchasing stock, buying back about $3
billion so far. Yet it still has $3.7 billion of cash on hand,
and less than $2 billion of debt. Motorola says it needs about
$1.5 billion to run the business, but it plans to eventually
have more debt than cash, and to continue returning about 30
percent of cash flow via dividends.
But it could still do more. It could, for instance, borrow
to buy back $5 billion of its stock, or more than a third of
outstanding shares. That would leave the group with around $5
billion of debt, which is supportable. True, running a company
with more debt requires more disciplined management. But with
activist investor ValueAct Capital, no stranger to seeking board
seats, owning about 10 percent of the stock, Motorola Solutions
shareholders are likely to receive precisely that.
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Motorola split into two companies in January 2011,
cellphone maker Motorola Mobility and Motorola Solutions, the
company’s operations in emergency communication and mobile
computing for enterprises.
- Google acquired Motorola Mobility for $12.5 billion in
August 2011. Motorola Solutions stock is up 38 percent since the
Patent search [ID:nN1E77E0MJ]
- For previous columns by the author, Reuters customers can
click on [CYRAN/]
(Editing by Rob Cox and Martin Langfield)
Keywords: BREAKINGVIEWS MOTOROLA/
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