Valuing a Motorola Breakup

Carl Icahn could save Motorola from CEO Ed Zander.

Zander has been in Cramer’s Hall of Shame of poor-performing chief executives since July 5. Usually, the CEO’s departure is the only way to make money on these stocks, but Cramer said Icahn’s call for a breakup of Motorola could be a boon to shareholders.

According to the Cramer calculus, MOT might be worth another five points, or 27%, if the company’s three businesses – wireless handsets, wireless equipment and home equipment – operated independently. And that’s with a 20% discount because Motorola lags its competitors and the assumption that none of these divisions would improve once they were on their own.

But Cramer said he has every reason to believe that the companies willing to buy the spun-off pieces of Motorola would be able to turn them around. So a healthy, broken-up MOT could fetch $30, still with the 20% discount. That’s a nice 55%, or 10 point, jump from where the stock is trading now.

Here’s the thinking behind the calculus: Cramer took the numbers for each division and found a similar company to value them – Nokia for handsets, Ericsson for wireless equipment and the price Cisco Systems paid for Scientific Atlanta in its acquisition. After finding the value for each individual piece, Cramer added them back together, then cut 20% off because MOT’s competitors are so much better.

There are only two other ways he sees the stock making any move: Zander announces he’s leaving when Motorola reports earnings Wednesday (a “low-probability event,” Cramer said); or some sign emerges that MOT’s earnings have bottomed (medium probability). These would be worth four and five points, respectively.

"It's pretty clear that Carl Icahn now has Motorola in his sights," Cramer said, and Icahn is rarely denied. So Cramer figures there is a much better chance of a breakup, and that could add at least four or five points to Motorola’s share price.

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