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Carl Icahn Is Eyeing Motorola Solutions

Carl Icahn is still battling over chemicals company Clorox, as well as a variety of other activist positions, but Motorola Solutions is a much more likely target for him.

Another day, another proxy fight for Carl Icahn.

Icahn has already moved on to his next battle, one day after losing his bid to gain a seat on the board of Forest Laboratories at its annual meeting on Thursday.

Icahn Friday filed a proxy statement with Clorox Co. announcing that he is seeking all 11 board seats at the company’s upcoming annual meeting. Icahn and his son Brett are among the 11 nominees. Remember, Clorox has already rejected two bids by Icahn to buy the company, the most recent one for $80 per share.

Investors are not confident that Icahn is all that serious, as the shares are kicking around the mid-$60 range.

While Wall Street and the media focus for now on the consumer goods company, they might want to also keep an eye on what is probably a more viable target: Motorola Solutions.

Icahn is the largest shareholder of the company, which was spun off earlier this year from Motorola, in large part as a result of Icahn’s urging. The surviving company, renamed Motorola Mobility Holdings, earlier this week agreed to be acquired by Google.

I pointed out in June that activist investor Jeffrey Ubben of ValueAct Capital Partners had upped his stake in Motorola Solutions to 5.9 percent. It is now by far his largest position.

Icahn and Ubben, who had not known each other until a few months ago, have since spoken several times over the phone.

When Ubben initially upped his stake in June, he correctly predicted that the company would announce a stock buyback; in July, Motorola said its board had authorized a share repurchase program of as much as $2 billion through 2012.

Ubben, however, calls this buyback “weak” given the company’s $7 billion in cash and $13.4 billion market capitalization. He figures the company will generate an additional $1.5 billion in cash over the next 17 months.

Meanwhile, Ubben says, the stock is trading at just 5½ to 6 times earnings before interest, taxes, depreciation and amortization. “I have not seen an opportunity that rich with a business that visible in a long time,” he asserts.

Motorola Solutions — formerly the Enterprise Mobility Solutions and Network divisions of Motorola — is a data communications and telecommunications equipment provider specializing in security devices. It sells to both companies and governments, including police and fire departments.

Its government segment includes a two-way-radio business and a public safety systems business. The enterprise segment includes mobile computing and scanning devices. In late April, Nokia Siemens Networks closed on its acquisition of the wireless network infrastructure assets of Motorola Solutions.

About two thirds of the company’s revenues are generated by the government sector.

“It is a wonderful business,” says Ubben. “It has a predictable installed base.”

Second-quarter operating earnings and sales climbed 6 percent, driven by “solid demand” across both its government and enterprise segments, the company reported.

The smart money is starting to take notice.

In the second quarter George Soros lifted his stake by 25 percent. In addition, a number of savvy hedge fund managers took large initial stakes in the stock. They included Two Sigma Investments, which bought more than 1.5 million shares, and Millennium Management, which bought 532,000 shares.

Meanwhile, on July 28, Citi Investment Research & Analysis raised its price target on the stock to $53 from $47, citing its target price-earnings multiple of 19 applied to its forward earnings-per-share estimates, which include the benefit of stock buyback plus estimated excess cash per share of about $8.

Pressure is clearly mounting for this company to do something bold to reward shareholders. Otherwise, Wall Street will make sure it happens.

“[CEO Gregory] Brown must be feeling pressure,” says Ubben. “We’re coming at him.”

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