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Carl Icahn progressing with Motorola

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May 1, 2007

According to some reports, Carl Icahn is gaining support from Motorola stakeholders, increasing the likelihood the shareholder activist and investor will hopefully get a seat on the company's board in a few days.

Despite Motorola's CEO Ed Zander's recent lobbying of large investors, some say they welcome Icahn's influence at Motorola, which posted a loss for the first three months of 2007 on plunging mobile phone sales.

Motorola's stock has dropped almost 32 percent since October 2006, when it began missing profit targets.

David Chalupnik, senior managing director for U.S. Bancorp's FAF Advisors said "we don't see what the downside is to Carl Icahn joining that board."

U.S. Bancorp plans to vote its 9.4 million shares in favor of Icahn, he said.

At Motorola's annual shareholders meeting to be held May 7, the showdown is expected to culminate, with the Queens-reared Icahn battling the Brooklyn-born Zander.

Carl Icahn is expected to increase the pressure on Zander to fix Motorola's problems, prod the company's board to be more active and force many management changes at upper levels, a Motorola investor said.

John Krause, senior equity research analyst at Thrivent Asset Management was quoted as saying "he's got to get under the hood. Icahn will try to drive more efficient operations, take some costs out and limit acquisitions in non-key areas."

Krause, who met with Icahn's representatives recently, declined to say how Thrivent is going to vote its 390,000 Motorola shares. But he added "it would be positive if he is on the board."

Icahn's campaign got a boost last week when Institutional Shareholder Services (ISS), which advises big investors on board elections and other proxy fights, endorsed him. ISS made its recommendation to big Motorola investors like U.S. Bancorp and mutual fund manager T. Rowe Price Associates, which holds 16 million Motorola shares.

T. Rowe Price normally follows ISS' advice, "but we exercise some flexibility around their recommendations," said Thomas Huber, a vice-president and fund manager. He declined to say how the firm will vote.

Likewise, Brad Williams, fund manager for MTB Investment Advisers Inc. in Baltimore, generally goes with the ISS nod.

Williams said "overall, we tend to follow their recommendation unless there's a compelling reason to do otherwise." MTB Investment Advisers holds about 300,000 Motorola shares.

No shareholders have told the company how they're going to vote, a Motorola spokesman said.

Zander declined to comment, and Icahn didn't return phone calls. If investors do elect Icahn, it will mark a decisive change in their attitude since he began buying shares earlier this year.

Four months ago, Icahn disclosed that he had taken a stake and subsequently increased it to 69 million shares, or 2.9 percent of the company.

Initially, some investors said they were skeptical that he could bring about positive change. But that was before the company reported an unexpected first-quarter loss.

In its report dated April 24, ISS noted double-digit annual returns at companies like Time Warner Inc. and Federated Department Stores since Icahn took stakes in those companies.

However, not everyone is sticking around to see whether he can do the same for Motorola.

Howard Ward, fund manager for Rye and Gabelli Funds LLC said "Icahn doesn't necessarily have the right touch on everything."

Ward sold the 230,000 Motorola shares held in Gabelli's Gamco Growth Fund in the first quarter of 2007. "I'm not sure he made the right bet. This is such an incredibly vicious business. He's really got his work cut out for him."

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Source: Wireless Week


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