Billionaire investor Carl Icahn appears to have a good chance of succeeding in his high-profile bid for a board seat at Motorola, portending trouble for Chief Executive Ed Zander, analysts and investors said this week.
Icahn told Reuters on Friday he would likely seek Zander's resignation if the CEO fails to turn around the No. 2 cell phone maker, which is struggling against stiff competition, price declines and a lack of advanced phones.
While it is by no means certain that Icahn will be elected at the company's annual meeting on Monday, he has the backing of the leading proxy advisory firm, Institutional Shareholder Services, as well as Proxy Governance. Another firm, Glass Lewis, opposes his bid.
"A lot of large institutional shareholders place a lot of credence in ISS," said Joel Binder, chief investment officer at Old Second Wealth Management, an Illinois firm with $1.2 billion assets including about 100,000 Motorola shares.
"In the absence of some compelling reason not to, they will probably follow ISS recommendations," he said.
Shareholders will vote on the issue following a proxy battle in which Icahn said Motorola "suffered a critical failure in oversight and leadership" and likened reported comments by Zander to "something straight out of 'Alice in Wonderland'."
Icahn, 71, citing his almost 40 years of experience as an investor, has promised to speak up for shareholders by asking tough questions at board meetings, where he would be the biggest shareholder with a roughly 3% stake.
"This is a great company," Icahn said in an interview on Friday. "If Zander turns it around, we love him. If he doesn't turn it around, someone else should get a shot at it."
Motorola has argued that Icahn, a controversial figure who is famous for buying large stakes in companies he deems as underperformers and demanding changes, already serves on too many boards and lacks experience in the wireless industry.
"Carl Icahn is subverting our nomination process to achieve a narrowly focused and short-term agenda, and he does not have a sincere desire to represent you on Motorola's Board," Zander said in a letter to shareholders on Thursday.
ONE OF 11 SEATS
Shares of Motorola have fallen by about a third since mid-October as its results disappointed time and again.
Icahn initially said in January his goal was for Motorola to use its cash pile to enact a big share repurchase. But after the company posted a first-quarter loss last month and said its outlook was significantly worse than expected, Icahn said fixing operational problems took precedence over buybacks.
"I think he definitely will get elected," said Jane Snorek, an analyst at First American Funds, which holds Motorola shares among its $100 billion of investments. "If you're a shareholder, I don't know why you wouldn't vote him on," she said, adding that her firm planned to vote for Icahn.
ClearBridge Advisors, which owns 2% of Motorola's shares and is traditionally mum on its holdings, also publicly supported Icahn's push for a seat.
"Carl Icahn is a seasoned, successful investor with a significant position and a strong, long-term track record," ClearBridge's CEO Brian Posner told Reuters. "We believe that he will provide a fresh perspective based on his many years of business experience across a number of industries."
But Icahn's campaigns, such as Time Warner or Blockbuster , have had varying degrees of success.
If he does become a Motorola director, he may not be able to engineer big changes as he will have just one voice on a board of 11 people.
Charter Equity Research analyst Ed Snyder said Icahn could try to change the board and bring in managers more capable of restructuring Motorola.
"He can be a pain in the neck to the point where they buy him out. He can try to help position the company to be sold," said Snyder, who rates Motorola shares at "underperform."
One prominent hedge fund manager, who often takes activist stances, offered some criticism about Icahn.
"He doesn't do enough work on the fundamentals of businesses he buys," the manager said, adding that Icahn is often "looking to get a quick hit."