23, 07, 2011Motorola’s divestiture of its handset businessAfter several month of thorough internal reassessment and evaluation of the competitive environment, Motorola Inc. finally ruled that it had reached a decision to announce a spin-off of its handset division in March 2008. This was as a result of the mounting pressure from the stakeholders who could no longer put up with the consistent and continuous incurrence of looses by the company. To begin with, Motorola Inc. decided to completely dispose of the handset division given that it had greatly suffered from a lot of bureaucracy and internal politics which was rendering poor performance by the handset unit.
Therefore, the executive considered it wise to get rid of handset division to pave way so that the Motorola Company could focus more on what was benefiting the stakeholders other than dealing with a division which was not bearing any fruits since its inception. Increasing market competition was another factor that compelled Motorola Company to announce spin-off as a form of divestiture, this allowed them to outperform their rival competitors in the market. To achieve a wider market share, a Motorola required a lot of resource and extensive marketing strategy which at times was not feasible for the businesses to successfully run several subsidiaries, owing to complexities that were associated with multiple focuses on several subsidiaries.
The focus complexity was evident in financial administration that was too complex, resource allocation to the subsidiaries and finally supervision of a vast man power called for extra effort. Motorola decided to spin-off the extra burden. The decision to break links with handset division, according to the top Motorola executive was to create two foremost companies that will grant improved flexibility, customized capital acquisition, raise the attention and focus to the executive and also target venturing opportunity from the shareholders.
It was also understood that Spin-off creates a probability for businesses intending to restructure their business operations with the aim of fighting stiff competition. Analyst observed that, the spun-off businesses are likely to be significant when independent rather than when it is a larger business entity. In a pure spin-off, a company gives out 100% of its ownership interests as a dividend to its active shareholders.
After the spin-off, completely two separate and publicly held businesses which have exactly the same shareholder emerge. This form of selling builds brilliant opportunities for the astute investor to uncover a good business in a positive direction. The amalgamation of accountability, responsibility, and straight forward incentives generally shows up in the operating act. Very diversified companies that were conglomerated frequently traded at a discount. Thus, the spin-off of such a company was likely to boost the value of the parent owners, since it may be valued at nothing as part of the present business as a whole.
This was advantageous to the parent company in that, being independent implies that the stock price was assumed to be the total appraisals for to the parent company. Another reason was to separate the loss making business therefore sealing the primary business from being tarnished. This was indispensable in protecting the good will of the company that took an extensive deal of time to nature its growth and therefore it would have been of paramount importance for the company to spun-off the poorly performed division.
Finally, the split of Motorola was expected to seize a form of tax exemption to its owners and this was known to consume a number of months working out the details of the disintegration plan. Splitting up the Motorola handset division, helped the primary company build a focal point of attention for enhanced leadership on its mobile devices business.