Updated: Motorola: Icahn Sues For Documents; Letter Calls Board A ‘Frat’; Compromise Rejected
Carl Icahn says he is filing suit against Motorola in Delaware Chancery Court to obtain internal documents, which he says will be key in his brewing proxy battle with the troubled handset maker. In a statement, he claims to have requested documents that would shed light on whether or not management has breached its fiduciary duty by making various optimistic predictions that have not ultimately been borne out. Specifically, he wants documents pertaining to board minutes, internal documents provided to the board of directors, and information regarding corporate travel and the use of company aircraft. Icahn intends to share this information with shareholders, aiding his attempted election of Frank Biondi, Jr., William R. Hambrecht, Lionel C. Kimerling and Keith Meister, to the company’s board.
In addition to the lawsuit, Icahn has sent a new letter to shareholders explaining his frustration. The gist: Motorola continues to be a loser, and although the board has said it’s exploring a restructuring, it’s communicated nothing to shareholders on how this is going. Driving home the point, the letter details a history of optimistic statements from the company over the last 18 months which have not come to pass. From the statement: “I am convinced that Stockholders need to elect ALL of our candidates to send a message to Motorola’s management and remaining directors that the “status quo” at Motorola and inside its boardroom is no longer acceptable. It is essential to the future of Motorola that its directors realize that the BOARD, especially at this precarious time, is NOT A COUNTRY CLUB OR A FRATERNITY, and that truly “qualified” people whose interests are truly aligned with Stockholders, are needed on the Board in order to save Motorola (NYSE: MOT). I urge all Stockholders to exercise their voting franchise AND ELECT ALL FOUR OF OUR NOMINEES.”
Update: In an interview, Icahn told WSJ that he has rejected a compromise offer from Motorola that would have allowed him two board seats. Specifically, he says, the company did not want to give a seat to nominee Keith Meister, a move that Icahn called “intolerable and reprehensible.” Motorola, meanwhile, said that it was willing to show Icahn internal documents, but only if they were kept in confidence. Icahn was not interested in this offer, as he’s hoping to use the documents as leverage against the company.
Full text of the letter after the jump
Dear Fellow Stockholder,
As we all are painfully aware, over the past 18 months, the market value of Motorola has dropped by over $37 billion. More than $17 per share of Stockholder capital has vanished under the “guidance” and “leadership” of the current Board.
Results in Motorola’s Mobile Devices business have gone from bad to worse——all under the “stewardship” of the Board and management that assured us during last year’s proxy contest that they had a plan to right the ship, a “drumbeat” of new products that would address the needs and desires of the worldwide markets, a software and silicon strategy that would drive sales and margins, and a management team that was up to the task.…. 2008 was supposed to be a successful and profitable year in Mobile Devices with the potential to achieve 10% operating margins in the near future. Instead, the results are a Stockholders’ nightmare.
Last year I argued that Motorola needed true Stockholder representation on the Board; unfortunately, we lost that battle in a close election. Motorola’s Board and management made enough empty promises to convince Stockholders to give them another chance to get it right. They didn’t. What we got instead was a year of revolving-door executives, a leadership vacuum, and accelerating deterioration at Motorola’s Mobile Devices unit.
PROTECT YOUR INVESTMENT – VOTE FOR OUR NOMINEES
We now have the opportunity to elect four strong individuals with superlative credentials to the Motorola Board. Three of these individuals, Frank Biondi, Jr., William R. Hambrecht and Lionel C. Kimerling, are independent of Icahn. In my opinion they would not only bring substantial intelligence and experience to the Board but would broaden its perspective and provide voices to challenge the chaotic status quo at Motorola. But most importantly, as I said last year, I am convinced that Motorola must have a large Stockholder on the Board. Icahn entities currently own approximately 145 million Motorola shares. Keith Meister is a top member of the Icahn team and a principal in our funds, which manage over $8 billion of assets. He has been the Chief Executive Officer/Principal Executive Officer of Icahn Enterprises L.P. since 2003, the stock of which has increased from $8 to $80 per share during his tenure. He will have 145 million reasons to advance all Stockholders’ interests. However, the Motorola Board, the members of which in the aggregate own less than 1.5 million Motorola shares (excluding option shares), - has found that Mr. Meister is not “qualified.” It should be noted that the nominating committee never even deigned to give Mr. Meister an interview, even though accepting Mr. Meister might avert a distracting proxy fight – just another example of the Board’s insular ways and flawed judgment. One must wonder what it takes to be board “qualified” at Motorola. Is it the ability to lose $37 Billion? And what “qualified” Greg Brown to be the CEO? He certainly – as far as I can ascertain – has no in-depth experience or knowledge concerning the Mobile Devices business, which was and is by far the major problem for Motorola. Hopefully, our litigation with Motorola will soon reveal just how hard our “blue-ribbon board” tried to find an alternative to the “qualified” Mr. Brown.
I am convinced that Stockholders need to elect ALL of our candidates to send a message to Motorola’s management and remaining directors that the “status quo” at Motorola and inside its boardroom is no longer acceptable. It is essential to the future of Motorola that its directors realize that the BOARD, especially at this precarious time, is NOT A COUNTRY CLUB OR A FRATERNITY, and that truly “qualified” people whose interests are truly aligned with Stockholders, are needed on the Board in order to save Motorola. I urge all Stockholders to exercise their voting franchise AND ELECT ALL FOUR OF OUR NOMINEES.
As you may know, the Board has finally announced that it is “studying” a restructuring at Motorola, including a possible spin off of Mobile Devices——a position that we have supported for months (in fact, in an interesting “ coincidence” this announcement by Motorola came the day before we were required to submit the names of potential nominees under the Motorola bylaws). However, it has been almost two months and Stockholders, customers, employees and vendors are still waiting for Motorola’s “august” Board to make a decision. Meanwhile, the Mobile Devices business is melting and the Board is still “studying”. Now is the time for action, not more indecision. It is therefore especially vital that we have the right people on the Board to drive, guide and monitor this restructuring and spin off process through to completion. This will provide Stockholders the best opportunity to get it right.
SPIN-OFF MOBILE DEVICES WITH A NEW STRONG CEO AND RESTORE THIS ICONIC BRAND
We believe that Motorola’s Board and its ever-shifting management team have proven themselves unable to fix Motorola. Their oft repeated and ultimately empty promises of better times ahead (see Motorola’s Record of Failed Leadership below) leave us doubting that they either have, or ever had, any real handle on what Motorola is doing and where it is heading. MOTOROLA’S STOCK PRICE OVER THE LAST YEAR TELLS THE STORY BETTER THAN ANY WORDS CAN.
We are convinced that two things are necessary to restore value to Motorola Stockholders:
* Spin-off the Mobile Device operations to Stockholders as a wholly separate company with a new CEO. The Mobile Devices industry is driven by unceasing innovation and creativity, neither of which can exist in an organization subject to constant turmoil. Mobile Devices needs a new CEO and new management team free from the inept current leadership of Motorola. I believe that no new “top-notch” Mobile Devices management team will be willing to report to or be involved in any way with the current Motorola management or Board. A separate Mobile Devices company would have the independence and flexibility that, in our opinion, are required to succeed and achieve the potential of its iconic brand. Today, Motorola’s stock price reflects no value for the Mobile Device’s business. We believe that outside Motorola, with a new management team and renewed vigor, its value to both Stockholders and the market will become apparent.
* Give Stockholders a strong and capable voice in the Boardroom. I believe Stockholders should not be forced to tolerate the erosion of the value of their investment brought about by the lack of judgment and oversight of the current Board. When you consider the statements and assurances that management and the Board are sure to make in this proxy contest remember the statements and assurances given last year. A strong mandate from Stockholders electing all of our four nominees is, in my opinion, absolutely necessary to save this once great American company. Do not allow the past to repeat itself – elect all four Icahn nominees with a clear mandate for change.
Empty Promises
Motorola’s Record of Failed Leadership
Consider the following statements made by Motorola’s management and Board over the past 18 months:
October 17, 2006 - “With our new portfolio of mobile devices shipping in volume this quarter…we look forward to continued successes in the months and year ahead.”
Motorola shares closed at $24.85.
January 19, 2007 - “I am confident that we remain well positioned for continued growth and success.” … “we will continue to execute on our focused, strategic plan to create value for our shareholders.”
Motorola shares closed at $19.27.
March 21, 2007 - “the actions that we outlined in January were not progressing fast enough, if at all.”
Motorola shares closed at $18.74.
April 18, 2007 - “This is a great business with a substantially growing market that requires a high degree of R&D investment, supply chain excellence, a cost structure that requires maniacal focus and flawless execution. We know how to do this and have done it for almost three years.”
Motorola shares closed at $18.22.
May 3, 2007 - Your Board and management are also committed to restoring the profitability of our Mobile Devices business, and are executing a comprehensive plan for doing so. Mobile Devices is a great business in a growing market, and your Board and management have a strong plan for its success. Our plan draws our many years of unprecedented success in this challenging market, as well as the expertise of our newly strengthened management team. Together, we are taking aggressive actions to improve the performance of our Mobile Devices business.”
Motorola’s shares closed at $17.73.
July 19, 2007 - “In Mobile Devices we did not achieve the level of sales and unit shipments that we had expected, primarily in Asia and the Middle East and Africa. Europe, as we have been saying all year, continues to be a challenge”
Motorola shares closed at $18.22.
September 7, 2007 - Mobile devices, as far as we’re concerned, is a double digit operating earnings business. We’ve been there, we know how to do it, and we will do it again.”
Motorola’s shares closed at $17.13.
October 25, 2007 - “with … the initiatives we are taking in Mobile Devices we will further improve our performance and create long-term shareholder value.”
Motorola’s shares closed at $19.30.
January 23, 2008 - “We are … working to get Mobile Devices back on track.”
Motorola’s shares closed at $10.01.
As of the date of this letter, Motorola stock is trading at $9.25. Mobile Devices has run through four unit heads. Its market share has been almost halved since the fourth quarter of 2006. Sales have plummeted. Operating income has fallen from $2.7 billion in 2006 to a loss of $700 million in 2007 and increased losses are projected in the first quarter of 2008. Meanwhile, Motorola’s corporate leadership has been in constant turmoil. Motorola has had two CEO’s and three CFO’s in little over a year.
The board of a public company is there to oversee management and help guide the company, not man the turnstiles of the executive suite. A board’s purpose is to provide stability and direction. A significant Stockholder presence on Motorola’s Board might have helped avoid the staggering failure of leadership at Motorola. Stockholders have suffered and Motorola has been damaged. We are convinced that your vote for our nominees can help prevent further harm. Consider the backgrounds of our highly qualified nominees:
Frank Biondi, Jr.
Mr. Frank Biondi, Jr. is well recognized as a senior executive with substantial experience, including nearly a decade as President and Chief Executive Officer of Viacom (NYSE: VIA), Inc. Mr. Biondi is a director of Amgen Inc., Cablevision Systems Corp. (NYSE: CVC), Hasbro, Inc., The Bank of New York Company, Inc. and Seagate Technology.
William R. Hambrecht
Mr. William R. Hambrecht is the Founder, Chairman and Chief Executive Officer of WR Hambrecht & Co., which was instrumental in persuading Google (NSDQ: GOOG) to use an Internet-based auction for their initial public offering. He also co-founded Hambrecht & Quist, an internationally recognized leader as an investment banker to high technology entities, with early involvement in companies such as Apple (NSDQ: AAPL) Computer, Genentech and Adobe Systems (NSDQ: ADBE). Hambrecht & Quist was sold to the Chase Manhattan Bank in 1999.
Lionel C. Kimerling
Lionel C. Kimerling is the Thomas Lord Professor of Materials Science and Engineering at Massachusetts Institute of Technology. Since 1993, Mr. Kimerling has been Director of the MIT Materials Processing Center where he conducts an active research program in the structure, properties and processing of semiconductor materials, and since 1997 he has been Director of the MIT Microphotonics Center. Prior to joining the MIT faculty, he was Head of the Materials Physics Research Department at AT&T (NYSE: T) Bell Laboratories from 1981 to 1990.
Keith Meister
Keith Meister has been the Chief Executive Officer/Principal Executive Officer of Icahn Enterprises L.P. since 2003, the stock of which has increased from $8 to $80 per share during his tenure. Mr. Meister also serves as a Managing Director and senior member of the investment team of the Icahn investment funds which manage over $8 billion of assets. He also serves on the boards of directors of XO Holdings, Inc., WCI Communities, Inc., and Federal-Mogul Corporation.
We urge you to support the election of ALL FOUR OF OUR NOMINEES. Help us bring significant and, we believe, sorely needed Stockholder representation, to the Motorola Board.
Sincerely,
Carl C. Icahn
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