Will Icahn and Ubbens Team Up For Motorola?

Motorola Solutions seems to be squarely in the cross-hairs of activist investors. Interestingly, the company’s stock is one of the largest holdings of Carl Icahn, while at the end of the first quarter it was one of just 14 stocks held by ValueAct’s Jeff Ubben. So what will happen next?


Motorola Solutions seems to be squarely in the cross-hairs of activist investors.

The company’s stock is one of the largest holdings of Carl Icahn and one of Icahn’s key people — Vincent J Intrieri — sits on the company’s board of directors.

Meanwhile, at the end of the first quarter Motorola Solutions also was one of just 14 stocks held by ValueAct’s Jeff Ubben and one of two stocks that the activist recently “graduated” to his core portfolio, along with Moody’s.

Other large holders include George Soros and Highfields Capital, another hedge fund that takes activist roles from time to time.

Are Icahn and Ubben planning to team up to prod Motorola to find ways to boost its stock? Hard to say. So far they have never met. Emphasis on “so far.”

But the pair seems to agree this stock has a lot of room to rise. “I think it is undervalued,” Icahn confirms.

On one level, Icahn and Ubben couldn’t be any different. Icahn is a scrappy Bronx native who likes to get in the face of management, while Ubben, who has a bachelor’s degree from Duke University and an M.B.A. from Northwestern, prefers to work with management behind the scenes and negotiate seats on the Board. But don’t misunderstand. He then could become pretty persuasive.

Icahn acquired his shares from the early January break up of Motorola while ValueAct went into the market and bought shares of the newly public company after it started trading.

In early January, Motorola spun off its mobile phones division into Motorola Mobility. The newly named Motorola Solutions—formerly the Enterprise Mobility Solutions and Network divisions of Motorola — is a data communications and telecommunications equipment provider, specializing in security devises. It sells to both companies and governments, including police and fire departments.

Its Government segment includes its two-way radio business and public safety systems business. The Enterprise segment includes enterprise mobile computing and scanning devices.

In late April, Nokia Siemens closed on its acquisition of the wireless network infrastructure assets of Motorola Solutions.

In the first quarter, Motorola Solutions’ gross profit margin climbed to 50.3 percent from 49.3 percent a year earlier and its operating profit margin surged to 11.3 percent from 8.7 percent.

“I just love this business,” says Ubben, noting Motorola Solutions is growing its top line by 5 percent to 7 percent. He adds that the company has a 65 percent to 70 percent share of the land, mobile and video business. “It is like IBM of the 1980s,” says Ubben. “You will not get fired for buying radios and infrastructure from Motorola as a municipal employee.”

“It has a high barrier to entry,” adds Icahn. “And the selling of the network business was a very important transaction.”

The stock is up about 18 percent, to around $47 from its closing price of $39.77 on the first day after the break-up. Even so, Ubben and Icahn think the stock is undervalued.

Ubben likes the fact it grew through the recession and has net cash of $6 billion, which works out to about 37 percent of its roughly $16 billion market capitalization. “It is a layup LBO,” he asserts. “If you ever see megadeals again in private equity, Motorola Solutions would be at the top of list.” If that were to occur, he says a deal could go for $65 per share, or $21 billion.

Ubben certainly has history on his side. His hedge fund is up 25 percent this year after racking up gains of 42 percent in 2010 and 36 percent in 2009.

Since 2001, ValueAct has made at least 60 “core” investments. During that time its partners or other key people have sat on 27 Boards of Directors and helped to sell 18 businesses.

According to an analysis made by FactSet SharkWatch, two years after Ubben was named a director, the stocks of those companies were up, on average, 9.69 percent compared with a loss of 3.77 percent for the S&P 500, for an outperformance of nearly 14 percentage points.

This is definitely one to watch closely.