Motorola May Split into 3 Companies

[SCPD]

http://www.nytimes.com/2009/11/12/technology/companies/12motorola.html

Motorola, which has said it wants to split into two separate companies, is exploring a three-way split instead in order to raise cash and pay down debt.

 

[jackj]

Does anyone else see the folly in selling off money making divisions in order to raise money to pay off debt incurred by money loosing divisions? Wouldn't it make more sense to get rid of those divisions loosing money, even if you have to just close them down?

Jack j

 

[N_Jay]

Nope.

Even a money losing business is often less expensive to sell than to close.

Also, when you break up a company each new company usually outperforms their expectations because of the efficiency gained by allowing them to focus on their business, and the inefficiency gain of shedding the corporate structure above them.

 

[jackj]

Breaking up

Nope.

Even a money losing business is often less expensive to sell than to close.

Also, when you break up a company each new company usually outperforms their expectations because of the efficiency gained by allowing them to focus on their business, and the inefficiency gain of shedding the corporate structure above them.

My point was that some divisions have no potential to ever turn a profit (buggy whips). For that reason, it would be hard to find a buyer for them at any price. In that case, your only choice might be to lay off the employees, shut the doors and take your financial licks.

I'm currently retired but I watched the company I used to work for sell every money making division in order to sink the profits from the sale into one division that had been loosing money since it's inception. They were finally left with only the divisions that either were loosing money or that nobody wanted despite showing a slight profit. That company is currently in the process of destroying itself with crushing debt and expenses that are completely out of line with the rest of the industry.

If you say that the problem was mismanagement, I would agree. But it appears the same problem is now effecting Motorola (another company for whom I used to work). Hmmmmm....I wonder if there could be some connection?

Jack j

 

[N_Jay]

So, which groups do you consider "buggy whips"?

 

[jackj]

Buggy Whips?

So, which groups do you consider "buggy whips"?

We're getting a little far afield from the original post but it really doesn't matter which groups "I" consider to be "buggy whips". I am not interested in buying any company for any price so my opinion doesn't matter.

My original point was that selling profitable divisions in order to raise money to support loosing divisions is the exact opposite of what should be happening.

Jack j

 

[N_Jay]

We're getting a little far afield from the original post but it really doesn't matter which groups "I" consider to be "buggy whips". I am not interested in buying any company for any price so my opinion doesn't matter.

My original point was that selling profitable divisions in order to raise money to support loosing divisions is the exact opposite of what should be happening.

Jack j

It really does not matter what you "sell" and what you "keep".
In the end you end up with separate corporations.

EXAMPLE:
So if company "A+B" sells "B", we have old company "A" and new company "B".
If company "A+B" sells "A", we have old company "B" and new company "A".

In the end we end up with separate "Company A" and "Company B" entities, and all the; "What part do we sell and what part do we keep" talk is about the naming rights and where the top management wants to go.

My question about "buggy whips" was because from your discussion, it seemed that you thought some part was truly worth shutting down.

I am a little of a contrarian thinker in this regard, but i think you should sell (or spin) a division when it has just slipped off the curve to the top. This is the point where it has the most value and also the point where it is likely to start absorbing a large amount of resources to try to recover.
Motorola Cellular would have been in the 1995 to 1998 time-frame.

 

[jackj]

Interesting! You must have graduated from the same MBA school as those running today's companies.

If company A+B sells B to company C then I think you'd end up with company A and company C+B. Correct me if I'm wrong but I think that's still two companies.

However if company A+B spins off a profitable division B as an independent company in order to raise money to support division A which is loosing money, then company A is now a company without a division that is profitable. But company B is now a company without the burden of a money loosing division. It won't make any difference who has naming rights.

Jack j

 

[N_Jay]

Interesting! You must have graduated from the same MBA school as those running today's companies.

Same school, different thinking.
Most seem to go after M&A activities that are hoping for some magic "added value" by combining businesses.
In reality, most merged companies lose value due to compromises made in the name of synergizing operations, bloated management structure, and such.
Look at the history of mergers vs. spin-offs. One side has a long record of "bad deals", and it is not the spin-off side.

If company A+B sells B to company C then I think you'd end up with company A and company C+B. Correct me if I'm wrong but I think that's still two companies.

Maybe maybe not. You are assuming purchase by an ongoing enterprise. I would think a spin-off or purchase by an investment company is much more likely.

However if company A+B spins off a profitable division B as an independent company in order to raise money to support division A which is loosing money, then company A is now a company without a division that is profitable.

But now they are free of both the debt and can focus on there (now more narrowed) business.

This does not guarantee success, but given the choice of being in a market carrying a lot of debt and constantly being "distracted" by management trying to "find synergy" with the other division,
or,
being in the same market with the same standing being relatively debt free, and having a the focused attention of the management team.

Well you make the choice which you would buy stock in, work for, or but products from?

But company B is now a company without the burden of a money loosing division.

Yep, free to grow on its own profits, and hopefully sold at a value that reflects that potential.

It won't make any difference who has naming rights.

I agree, but too many managers get tied up in ego issues.

 

[idontknow82]

This could get interesting. Nice news find.

 

[James_Bond_007]

good maybe this will deflate the company's enormous ego.

 

[b7spectra]

Example:

AT&T in the 80's bought/sold NCR. AT&T had one of the original wireless systems - sold it as it wasn't a money maker (had to purchase McCaw as they found out they did make money). AT&T also sold off, or spun off Western Electric to become Lucent Technologies, which spun off several more divisions (the money losers) only for them to make money and to be bought back up by the AT&T monopoly (but some got bought up by either a French or Italian company). Kinda keeping in line with the AT&T monopoly that was broken up in 1983 by the government for being a monopoly then, only to be back together again and be a monopoly now!