Motorola Ends Proxy Feud With Icahn

CHICAGO -- Motorola Inc. settled its proxy battle with Carl Icahn on Monday, agreeing to back two of the billionaire investor's nominees for its board of directors in exchange for him dropping litigation against the cell phone maker.

The agreement avoids a showdown at the company's upcoming annual meeting for what would have been the second straight year.

Motorola named Keith Meister, a managing director of Icahn investment funds, to its board and said it will nominate both him and fellow Icahn nominee William Hambrecht for director slots. The agreement virtually ensures that both will be elected at the company's May 5 shareholder meeting.

Schaumburg, Ill.-based Motorola also will seek input from Icahn on the planned separation of its mobile devices operations and search for a chief executive for that business under the terms of the agreement.

Icahn agreed not to solicit proxies at the annual meeting, to dismiss litigation against the company and to vote his shares in support of all of the board's director nominees.

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Motorola still faces an uphill challenge with its troubled cell phone unit but said it was pleased to have reached the agreement with Icahn.

"We believe that this matter has been resolved in a manner that serves the best interests of our shareholders and prevents a costly and distracting proxy contest," Motorola spokeswoman Jennifer Erickson said. "We and Mr. Icahn share a common interest in positioning all of our businesses to deliver an enhanced shareholder value."

Motorola has floundered since the second half of 2006 because of flawed pricing and marketing strategies, and the inability to follow up its blockbuster Razr phone with another hit. New CEO Greg Brown, who succeeded Ed Zander in January, announced two weeks ago that the company would split its core handset unit from its other operations to form two separate publicly traded companies in hopes of reviving its main business.

Icahn — who lost a proxy fight last year in which he sought a seat on the board — forced another one this year by scooping up more shares at a depressed price and increasing his stake to 142 million shares, or 6.3 percent of those outstanding. He proposed a rival slate of four candidates to the board to shareholders and sued Motorola last month, seeking documents about its executives and its cell phone business.

By granting Icahn two board members, Motorola cuts short what would have been an expensive proxy fight, ensures he doesn't get all four seats and avoids more damaging public comments from him.

Bob Forman, a telecom expert from the executive recruitment firm CTPartners, said both sides win with the agreement.

"Greg Brown ends the disruptive proxy fight and can put his focus back on turning Motorola around," he said. "Icahn gets what he wanted: a say in who will run the handset business, which he believes holds the most value of any part of Motorola today."

Kaufman Brothers analyst Raimundo Archibold Jr. said the move is consistent with Motorola's intention to split in two, although it may not accelerate the divestiture of its mobile devices or cell-phone unit.

"In addition to issues concerning branding and intellectual property, we also believe mobile devices would need to reach a sustainable level of profitability for the separation to be successfully completed," he said in a research note.

Shares in the company rose 27 cents to $9.94 in midday trading, down 38 percent in 2008.

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