Motorola Showdown: Icahn vs. Zander

The corporate raider has been waging a war of words with the Motorola CEO ahead of the cell-phone maker's May 7 annual meeting

by Roger O. Crockett

Forget De La Hoya vs. Mayweather. The biggest slugfest these days is Zander vs. Icahn. In one corner there's Ed Zander, CEO of Motorola (MOT), the once-soaring, now reeling cell-phone maker. In the other is Carl Icahn, the corporate raider turned shareholder activist, who has been agitating for change at Motorola and wants a seat on its board of directors (see BusinessWeek.com, 4/1/07, "Motorola: Cut Icahn’s Interference"). Like antsy pugilists trying to work the media for a pre-fight edge, the two have been waging a war of words leading up to their showdown May 7 under the lights at Motorola's annual shareholder meeting in Chicago.

A couple of months ago, it looked as if Icahn didn't stand a chance. He came onto the scene in January amid the early fallout from Motorola's pursuit of market share at the expense of profitability. Icahn snapped up a barrelful of shares and called on the board to buy back up to $15 billion in stock. He had done much the same at several companies before, and Motorola shareholders dismissed him as an opportunist looking to pad his pockets rather than facilitate long-term change. "It's been said before that the only way to make Icahn go away is to make him money," says Shawn Campbell, principal at Campbell Asset Management, which owns Motorola shares.

But like any determined fighter, Icahn made adjustments during the battle. He's no longer suggesting that Motorola devote all its cash to buybacks—a move that would hurt Zander's ability to invest in the kind of innovation the company so desperately requires (see BusinessWeek.com, 3/29/07, "Why Icahn May Hurt Motorola"). In recent days, Icahn has suggested that as a board member he can help Motorola address some of its operational deficiencies and sharpen execution. That posture, along with a greater understanding of the depth of Motorola's problems, has led to a new reality: It's not so farfetched to think that Icahn could indeed win a seat on Motorola's board. Zander and the other directors "just don't want Icahn around to muddy up the waters," says Tom McIntyre, president of McIntyre Freedman Flynn Investment Advisers, which owns about 200,000 Motorola shares. "I don't find that attitude acceptable."

Proxy Battle Possible

McIntyre is not alone. A big-time shareholder, ClearBridge Advisors, said May 4 it would support Icahn's board-seat bid. The asset management firm, owned by Legg Mason (LM), owns about 54 million Motorola shares, representing about 2.2% of the company. Neither ClearBridge nor Icahn could be reached for comment, but other shareholders say Icahn could have been successful in convincing Motorola's biggest shareholders to vote in his favor. The stock has climbed 4.3% since the end of April, and that's not due to a sense that the status quo will be preserved, McIntyre says: "Someone is making a bet that Icahn will be on the board."

What brand of director would Motorola get if Icahn prevails? Armed with a war chest approaching $6 billion, he has filed proxies to elect board members at forest-products company Temple-Inland (TIN) and homebuilder WCI Communities (WCI). He bought a $89 million stake in biotech company MedImmune (MEDI) and contemplated a proxy battle before the company agreed to be sold to British drug maker AstraZeneca (AZN). At the same time, Icahn's 86.5%-owned holding company, American Real Estate Partners (ACP), is finalizing a $5.3 billion takeover of auto-parts maker Lear (LEA ).