February 27, 2021

Chicago News Cooperative: A Different Kind of Corporate Breakup

It was less than a year ago that the company now known as Motorola Mobility was just a struggling cellphone unit that its parent company, Motorola Inc., couldn’t seem to give away even if it tried. And boy, did it try.

Now Google’s planned $12.5 billion purchase of Motorola Mobility — with its valuable cache of technology patents — is proof that in a world of uncertainty and economic peril, almost anything can happen. Even something good.

For Chicago, it’s a lesson worth noting because Motorola is not the only local company that has taken a cleaver to its corporate structure. Kraft Foods announced early this month that it would split in two. Sara Lee is also doing so. Fortune Brands and General Growth, too.

Look around, and this strategy through separation is now largely a Chicago phenomenon. In no other city are so many companies pursuing a go-it-apart tactic. Chicago is becoming the bust-up capital of the economy.

As often as not, a breakup is a substitute for strategy. Motorola could no longer make its cellphone unit work or sell it, so dividing the company in two was the next best step. Kraft and Sara Lee, the two most notable bust-ups also under way, have come to the same point but for different reasons.

All three became corporate giants that in the end did not hold together. What all had in common was that management at some point decided there was no way out, except splitting in half and hoping for the best.

When Kraft bought Cadbury for $19.6 billion last year, it overcame resistance from Cadbury executives who had scoffed that the Cheez Whiz company had no business buying Britain’s king of confections. One of Kraft’s biggest investors, Warren Buffett, seconded that notion.

Turns out the skeptics were right. And Kraft’s planned split into separate snack foods and grocery businesses all but reverses the Cadbury purchase.

Likewise, Sara Lee. The company spent decades gobbling up companies with brand-name appeal: Jimmy Dean sausages, Douwe Egberts coffee, Kiwi shoe polish, Coach accessories, Hanes apparel, L’eggs hosiery. Sara Lee hoped to bring marketing know-how and corporate efficiency to this grab bag.

When the plan proved too difficult to execute and Wall Street found it did not like Sara Lee, the company’s latest squad of new management chose a breakup as the only viable option.

Motorola is a different case. Big mergers were never a core strategy at the company of innovators who invented the car radio and then the cellphone. If anything, Motorola over the years was too insular, and insularity made it vulnerable to a company like Nokia, which came from nowhere to steal leadership in the cellphone business.

Motorola never quite recovered. The Razr phenomenon came and went, and by the time the vulture investor Carl Icahn swooped in three years ago and began agitating for radical change, it seemed Motorola would have no next, winning act.

The company needed to split in two, and it did so in January. Cellphones would become somebody else’s problem — er, opportunity. The unsexy but profitable infrastructure business would be called Motorola Solutions. Goodbye, Moto.

Even after the split, Motorola Mobility floundered. With management still struggling for strategic direction, the stock fell 40 percent as the broader market dropped just 10 percent. Mr. Icahn demanded that the company consider selling its patents, as the failed Nortel Networks had.

Then Google comes along, pays a 63 percent premium with its $12.5 billion offer, and it’s Hello again, Moto. In Google’s hands, Motorola’s trove of patents and cellphone expertise could become the font of a new wave of innovation, and a boon for Chicago too, if Motorola’s research operation could remain in Libertyville.

Sam Hamadeh, chief executive of PrivCo.com, has paid attention to Chicago lately because of Groupon. Analysts like him see in the hype over Groupon, and now in Motorola’s Google deal, mounting evidence of a divided investment mindset.

“You see a larger division between winners and losers,” Mr. Hamadeh said. “I think that’s what’s going on in the economy in general.”

Companies like Motorola, Kraft and Sara Lee spent years trying to convince investors that they had a winning strategy. They did not succeed. In today’s tough economy, the market had stopped listening to their pitch.

A breakup, at the very least, creates a new story. And Google’s bid for Motorola Mobility shows that sometimes the story can open with a very happy start.


Article source: http://feeds.nytimes.com/click.phdo?i=cd9b33113017b449ba48d2871f954a22

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