Summary

Restructuring is one of those professions where almost anything goes and almost anything can happen. Depending on which side of the deal you are on, you are either winning or losing. There is no such thing as a clear win-win. You can rationalize a win-win but it would still be a rationalization.

Analysis

In a Chapter 11 restructuring (aka bankruptcy) the losers are the company and equity holders (stock holders and private equity owners) and the creditors. Yes, I said the creditors. Creditors do not want to own and operate companies. However, when push comes to shove and the company is taking the creditors, rightfully so, seize control of the bankrupt asset and takes whatever steps it needs to in order to recover their money. That all being said let us take a close look at Motorola needs to do. For the last several months the company has been undergoing a voluntary restructuring (Motorola is not in bankruptcy), which companies perform in order to avoid a Chapter 11.
 
Motorola Chairman David Dorman has indicated that the company remains committed to splitting off the handset division. That actually is good to hear and not because I agree with the split. Rather the death knell for any company that is in the midst of a restructuring is chaotic behavior. For the moment it is important for Dorman to stay focused on a single plan. Dorman can change plans but for every new idea being thrown about Dorman needs to measure each idea against the one that had been originally thought out.   This does not mean that Motorola should or should not sell the set top-box division. This means that Motorola needs to stop and think.
 
What does Motorola want to be when this is all over? The recent spike in the company’s revenue due to its new handsets is good for Motorola. However, the set top-box division has done very well; surpassing the handset division. On the surface you would think this a no-brainer; keep the set top-box division and sell the handset division.
 
My question is: Why?
 
The questions Dorman might consider asking himself are:
 
  • Where will the set top-box business be in 2 years?
  • Will cable television grow as fast as wireless media?
  • Will cable television flatten out?
  • Can the cable set top-box be used to support the wireless strategy of a Comcast or other cable television company?
  • What are the returns on investment for set top-boxes like in comparison to handsets? Handsets change every 6 months and the margins are usually very low. Set top-boxes do not go through the same frequent technology and product shifts that handsets go through; at least they don’t today
 
Dorman needs to use the current plan, to sell off the handset division, as the ruler against which every new plan presented is measured.

Analyses are solely the work of the authors and have not been edited or endorsed by GLG.