Icahn Shows the Value in Activism With Motorola Investment

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MSI: Motorola Solutions logo
MSI
Motorola Solutions

Carl Icahn’s long-standing association with Motorola seems to be drawing to an end after Motorola Solutions (NYSE:MSI) announced Monday that it has agreed to repurchase almost $1.2 billion worth of stock from the activist investor. [1] The deal was inked pursuant to the company’s $3 billion stock-buyback plan approved in January. Following the settlement of the transaction, Vincent Intrieri, Icahn’s representative on Motorola Solutions’ board, will resign from his position. Motorola Solutions was formed early last year after Icahn aggressively sought to split Motorola into two units. The other more famous sibling is smartphone manufacturer Motorola Mobility (NYSE:MMI).

See our complete analysis for Motorola Solutions stock here

Motorola Solutions’ stock has risen almost 30% since the split and is now about 11% ahead of our $45 price estimate (before the Icahn buyback). Icahn will receive a price of $49.15/share, a premium of around 10% over our fair estimate for the company’s business. We believe Icahn is cashing out at the right time as the markets have bid up the stock ahead of our intrinsic value estimates. The stock has risen up almost 14% since its latest earnings call.

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Given the low risk nature of the company’s business as it deals primarily in critical sectors such as public safety and emergency services, we believe the company will perform well in the future but the market upside to its current price is minimal.

Icahn is also looking at a huge windfall from his Motorola Mobility investment. Google will be acquiring Motorola Mobility this year after it secures all the regulatory approvals for $40/share, a huge 63% premium to its market cap on the day the deal was announced in August. We have a fair price estimate of $22 for Motorola Mobility’s business. The acquisition has already received the approval of regulatory bodies in Europe and the U.S.A, though Taiwan and Israel have yet to sign off on the deal.

Both the Motorola split and the Google acquisition were the handiwork of Icahn, who will be extremely pleased with the value he has created. He had argued strongly that Motorola should look to increase shareholder value by splitting the business first and then by maximizing the value of its strong patent portfolio. With these moves, Icahn’s activism has not only helped himself, but also other Motorola investors.

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Notes:
  1. Company SEC filing, February 26th, 2012 []