Motorola, Inc. (NYSE: MOT) announced today that after an extensive analysis of its businesses that it will split into two distinct companies by spinning off its mobile phone unit.
 
Motorola, best known by consumers for its Razr phone, has been under significant pressure from activist Carl Icahn who has been pressuring the company to take action on its unprofitable cellular phone division. Motorola’s cell phone production had nearly $19 billion in sales in 2007 – which was a significant fall from 2006 but still made it the largest division in the company. Motorola’s communication equipment and “set-top box” unit are the actual profit drivers of the company.
 
The company plans to achieve the split by next year through “a tax-free distribution to [its] shareholders.”
 
In a press release, Motorola CEO Greg Brown said:
 
"Our decision to separate our Mobile Devices and Broadband & Mobility Solutions businesses follows a review process undertaken by our management team and Board of Directors, together with independent advisors. Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus - as well as more targeted investment opportunities for our shareholders."
 
The real question is whether Motorola’s cell phone business is an “industry-leading” company. Despite the success of the Razr, cell phones have become a cut-throat business with razor-thin margins – no pun intended.
 
Regardless of how things play-out, it appears like Carl Icahn has scored another victory. Last year, Icahn basically forced then CEO Edward Zander from the company. Now, it appears as if Motorola, through the split, will become more aggressive about making its cell phone division profitable.
 
This saga probably isn’t near complete yet as Icahn will almost certainly be vocal about the exact manner of the split and the management choices for each new entity which definitely makes Motorola a stock worth watching.
 
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WiMax has been the talk of the technology sector for a long time as the promise of a nationwide high-speed wireless network has many druling at the mouth. The companies behind the project are just as excited as the new network would provide them with licensing opportunities that could make them billions of dollars in the future. The only thing standing in the way is a $3 billion bill that needs to be paid to roll out the initiative. Luckily, cable companies are beginning to step in as the new backers.

The WiMax initiative began as a cooperation between Sprint Nextel Corporation (NYSE: S) and Clearwire Corporation (NDAQ: CLWR) to create a nationwide wireless network using WiMax technology. The network is designed to provide high-speed web access from laptops, cellphones and other mobile devices as well as high-quality mobile video. The two were forced to explore other financing options after Sprint shareholders were unwilling to fully fund the venture, calling it excessively risky and expensive.

Cable companies have now stepped in to fill the void by taking partial ownership in the new venture. Comcast Corporation (NDAQ: CMCSA), the nation's largest cable operator, agreed to contribute as much as $1 billion into the venture alongside rival Time Warner Cable (NYSE: TWC) who would add $500 million. Bright House Networks, the sixth largest cable operator, would also contribute between $100 million and $200 million, according to the WSJ.

Other potential investors include Intel Corporation (NDAQ: INTC) - who could contribute up to a billion dollars - and Google Inc. (NDAQ: GOOG) who may provide hundreds of millions of dollars. However, it is still possible that the entire deal could fall through if all these parties do not agree and the partnership is unable to raise the $3 billion that it needs to make the project happen.

The deal also has widespread implications for shareholders of all the companies. Sprint's shareholders have been the most vocal against the deal after the company told Wall Street that it expects the venture to cost $5 billion by 2010. This prompted many to propose that the initiative be spun off and funded by someone else entirely. Meanwhile, a move by cable companies into the fray would escalate the rivalries by throwing them into a whole new arena.

In the end, the WiMax initiative looks very promising for consumers and like a great future investment for the companies involved, but it comes at a great cost in the near term. This is a cost that many Sprint shareholders believe is too high while many other companies may not be willing to put forth as much capital as the partnership would like to see. Regardless, this is definitely a situation worth watching closely.

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Clear Channel Communications (NYSE: CCU) shareholders are hearing a little static on the rumor airwaves and fleeing towards the nearest exit. Shares plummeted today after private equity firms and banks backing the $19 billion privatization of the nation's largest radio broadcaster failed to resolve their differences over final financing terms. Shareholders now have almost no confidence in the deal, which was slated to take place at $39.20. Instead, many analysts are now predicting shares to fall into the $20s.

The banks financing the deal were unable to create a credit agreement that satisfied all sides of the transaction. In particular, banks are concerned that if they lend the $22 billion needed to fund the deal, they would need to immediately write down the value of the loans as soon as the deal closes and book the losses. Since such debt has been typically marked down by 15%, this would equate to a $2.7 billion loss the moment the deal closes.  

Those involved insisted that there was still a chance that the deal could be salvaged, but the consensus remains that the deal looks unlikely to consummate. The bright side is that Clear Channel could then sue the private equity firms for breach of contract if the deal falls apart since it was not contingent on securing financing. This would help recoup some money, but do very little in the long run.

Clear Channel's business has also significantly deteriorated since the deal was first struck in November 2006. Bad news has been steadily rolling in since the buyout price was raised in the first quarter of 2007. Growth in its radio operations began to slow and then shrink as the firm's downward spiral became clear. Unfortunately for the buyers, the deal was already approved by shareholders so nothing could be done. Now, this burden may be shifted back to the shareholders.

In the end, a failed Clear Channel buyout would be the latest casualty in a series of high-profile busts since the credit market began to deteriorate. The banks and private equity firms at this point are likely still in the negotiations only to protect themselves from litigation by saying they put forth a noble effort. However, the potential losses from being sued for breach of contract still give shareholders some hope that a deal could take place. If not, shareholders could easily see their stock back in the $20s.

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Take-Two Interactive Software's (NDAQ: TTWO) board rejected Electronic Art's (NDAQ: ERTS) most recent buyout offer, saying that it was not in the best interest of shareholders. Instead, the company also confirmed that it would explore strategic alternatives to maximize shareholder value in other ways that could deliver a higher value than the current EA offer. So, what is the best move for shareholders at this point?

Electronic Arts, the world's largest video-game publisher, offered to purchase Take-Two for $2 billion in a hostile bid after management refused to negotiate before the released of its "Grand Theft Auto IV" on April 29th. EA wants to purchase the company now in order to obtain upside from the holiday sales of the game, but Take-Two management sees the buyout is opportunistically timed to capture the value of the upcoming game at the expense of shareholders.

Take-Two's board also insists that it has received indications of interest from third parties interested in purchasing the company since EA's bid, but that no substantive discussions have yet taken place. The company is intent on waiting until after the game is released to being discussions, but it did begin to assemble the materials necessary for interested parties to conduct due diligence. Any auction process would likely unlock additional value for shareholders above and beyond $26 per share.

Finally, Electronic Art's tender offer itself may no longer be viable. Take-Two adopted a Stockholders Rights Agreement (ie. poison pill) that would dilute the stock if EA acquired more than 20% of it. This would make such a hostile acquisition extremely expensive and unlikely to occur. Now, EA would be forced to launch a proxy contest to replace directors and remove the poison pill if it wanted to continue its pursuit.

In the end, Take-Two has rejected EA's offer because it has many other offers on the table that it would like to explore after the April 29th launch of its latest installment in the Grand Theft Auto series. It will be interesting to see EA's next move after the board installed a poison pill that put a fork in their plans. Regardless, this is all good news for shareholders that may now see more than $26 per share.

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Farming may not seem like the hottest industry on Wall Street, but Monsanto Company (NYSE: MON) shareholders would disagree. The global provider of agricultural products raised its outlook for the third time in three months on stronger demand for seeds. The company's stock has more than double during the past year as a result while it is now looking for ways to spend its extra cash.

Farmers are paying top dollar these days for genetically modified corn, soybeans and cotton seeds as a result of a bullish commodities market boosted by a rapidly declining U.S. dollar and stronger ethanol demand. In fact, business is so good that Monsanto announced that it would reach its long-term margin target of 52 to 54 percent this year- a full two years ahead of schedule.

These events prompted Monsanto to also raise its EPS guidance for the fiscal year to $3.15-$3.25 from $2.70-$2.80. The company is due to report its fiscal second quarter results on April 2nd, which are expected to be seasonally strong as farmers in the Northern hemisphere begin planting. Free cash flow also reached a new record of $1.4 billion, which means shareholders are likely to begin the common "use it or lose it" campaign.

Monsanto foresaw this rhetoric, however, and said it will look for ways to invest in acquisitions that further growth, projects that support the current business's growth and dividend, and share repurchase programs that return value to shareholders. Many believe that these future acquisitions may take place in quickly growing markets in India and China as an increasing acceptance of genetically modified seeds would mean more demand.

In the end, the demand for seeds will likely continue as long as the demand for corn and soybeans remains strong. Given the weakness in the U.S. dollar combined with continued demand for ethanol, this is a definite possibility and shares of MON should continue to see upside. The real question is then: Will the company use the excess cash to the benefit of shareholders or squander it on poor acquisitions?

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Market research firm Gartner Inc. reduced its 2008 forecast for personal computer shipments and warned that the estimate could drop further if the economy takes another turn for the worst. The firm now sees growth of 10.9%, or 293 million shipments, versus its forecast late last year of an 11.6% increase. Moreover, the firm warned that those numbers could drop to the single digits. This is bad news for pure-play PC manufacturers along with their component providers.

Gartner sees a healthy PC market right now, but several challenges in the near future. A deepening U.S. recession, the rising possibility of a slowdown in China's economy following the Beijing Olympics and higher oil prices could all put a damper on PC shipments this year. However, the firm also noted that PC sales should be boosted late this year through 2010 thanks to a desktop replacement cycle. Garnter predicted that strength in the emerging markets - which accounted for 60% of global growth in the fourth quarter - would also play a critical role.

This is bad news for pure-play PC-makers like Dell Inc. (NDAQ: DELL) that have already been having a bad year. The PC manufacturer has seen its domestic sales drop off a cliff and has been reliant on strong international growth and cost-cutting to drive revenues and improve its profitability. A slower domestic situation will only require additional international growth while cost-cutting can only be a temporary solution to a long-term problem. The reality is that PC sales are declining while the real money-maker - laptops - are quickly falling in price.

Struggling chip-makers like Advanced Micro Devices (NDAQ: AMD) may also find themselves in trouble. The company relied heavily on new product shipments to break-even last quarter and any slowdown could quickly send them back into the red despite plans to return to profitability by the end of 2008. Luckily they still have a chance at it if the replacement cycle begins as strongly as expected at the end of the year, as they are one of only two major chip manufacturers for PCs and laptops.

The reduced forecast could also affect many other companies to a lesser extent. PC manufacturers like Hewlett-Packard (NYSE: HPQ), Apple Inc. (NDAQ: AAPL), and International Business Machines (NYSE: IBM) may also feel some heat, but their diversified product lines should bar any major losses sustained. In the end, the PC business was thought to be relatively recession-proof, but these new predictions could change the story.

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At least one Coinstar, Inc. (NDAQ: CSTR) shareholder sick of being nickel and dimed has pushed the company to make several key changes. The Shamrock Activist Value Fund, which owns a 13.4% stake, demanded the board of directors be reformed and the poison pill be canceled. The move is seen by many as a precursor designed to make future actions to unlock shareholder value much easier.

Many investors are speculating that Shamrock, owned by Roy Disney and entertainment lawyer Stanley Gold, may be interested in eventually pushing the company to evaluate strategic alternatives. Some are expecting a rough 2008 after a plan was announced to remove cranes, bulkheads and kids' rides at Wal-Mart Stores (NYSE: WMT) and other retailers and install more Coinstar Redbox DVD kiosks and coin counting machines in a move that will lower revenues while increasing investment costs.

Coinstar, however, anticipates that the long-run implications of the Wal-Mart deal are worth it. The company projects that the projects could contribute between $165 and $195 million per year with EBITDA of between $36 and $45 million by mid-2009. This compares to a loss of entertainment dollars amounting to only $65 to $75 million in revenues and $15 to $20 million in EBITDA, which means that the company expects to realize incremental EBITDA gains of between $20 and $25 million when all is said and done.

While the Wal-Mart deal may be holding shares back these days, there are several potential areas in which value could be unlocked. Coinstar's $70 million majority ownership stake in their DVD rental kiosk business Redbox is one such area. The business will do revenues of between $250 and $270 million with an EBITDA of between $20 and $30 million in 2008. Even better, its EBITDA margins will approach 20% thanks to route density and economies of scale beginning at the end of 2009.

Coinstar could also try and divest its struggling entertainment business in order to focus more on its core money exchange businesses. The entertainment businesses have been losing steam while the DVD rental businesses could be easily divested to strategic buyers like Blockbuster (NYSE: BBI) and Netflix (NDAQ: NFLX) for a healthy premium. The move would free up cash that could then be used to establish a dividend or repurchase shares in order to unlock value for shareholders.

One final thing worth noting is Coinstar's cyclicality with the economy. This was brought up during the company's last conference call that showed there is a weak correlation between company and economic performance. The reason is because Coinstar's machines are used for relatively small transactions instead of big ticket items. This is also good news for investors since it makes this stock a relatively recession-proof one.

In the end, this is a stock that could benefit from some shareholder activism and Shamrock's attempt to remove key provisions could be the first step. Luckily for shareholders, the company is also doing well as a conglomerate so there is nothing to lose. Any activist move could substantially increase the share price, but a standalone company is also not such a bad proposition. Combined, these factors make CSTR a stock worth watching!

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Sirius Satellite Radio (NASDAQ: SIRI) received Justice Department approval yesterday for its $4.59 billion purchase of rival XM Satellite Radio (NASDAQ: XMSR). The controversial decision to give antitrust clearance to the deal was based on rapidly expanding technological options for audio media such as mobile phones and internet radio.

Justice Department antitrust chief Thomas Barnett said in a conference call with reporters that, "Competition in the marketplace generally protects consumers and I have no reason to believe that this won't happen here."

This is obviously good news for investors in both companies, though the deal still requires FCC approval. The Federal Communications Commission may prove an even more difficult audience for Sirius CEO Mel Karmazin who lobbied the Justice Department intensely for the deal. The FCC is seen as more susceptible to the outrage of groups like the National Association of Broadcasters that views this purchase as creating a monopoly.

The FCC currently has a policy based on a 1997 decision that prevents the combination of the two satellite radio companies. At this point, rumors from inside the FCC say that no decision has been made but that the Justice Department conclusion makes it more difficult for the FCC to flatly block it.

Though FCC approval is far from a given, the real question for investors remains - is there real upside in the combination of Sirius and XM? Here's what the Justice Department had to say in their statement allowing the deal:

"Because XM and Sirius would no longer compete with one another in the retail channel following the merger, the Division examined what alternatives, if any, were available to consumers interested in purchasing satellite radio service, and specifically whether the relevant market was limited to the two satellite radio providers, such that their combination would create a monopoly. The parties contended that they compete with a variety of other sources of audio entertainment, including traditional AM/FM radio, HD Radio, MP3 players (e.g., iPods®), and audio offerings delivered through wireless telephones. Those options, used individually or in combination, offer many consumers attributes of satellite radio service that they may find attractive. The parties further contended that these audio entertainment alternatives were sufficient to prevent the merged company from profitably raising prices to consumers in the retail channel – for example, through less discounting of equipment prices, increased subscription prices, or reductions in the quality of equipment or service."

The statement also say there are "substantial" cost savings to be had, but overall tone speaks to the reality that satellite radio seems almost like old media in the face of iPods and streaming, high quality internet radio. Sirius and XM possibly warrant investment with total approval now more likely, but the companies certainly don't warrant unbridled enthusiasm.

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Tiffany & Co. (NYSE: TIF) shares rose sharply today after its profits slipped but still topped estimates. The diamond retailer also issued a bullish outlook, saying that it expects "robust" growth in the non-U.S. markets that should drive earnings 10.5% higher than previously expected. However, it still expects a slight decline in U.S. same-store sales as the poor economic climate shows no signs of letting up.

The share price has been so volatile because many investors expected luxury retailers to take a hit amid weak U.S. consumer spending. Many like Tiffany's quickly expanded during the last decade into non-metropolitan markets that are now suffering with weaker consumer spending. However, strong international spending has driven results and led to a substantial increase in earnings that caught many off-guard.

The rise also spurred a rise in other luxury retailers including Zale Corp. (NYSE: ZLC), Blue Nile Inc. (NDAQ: NILE), and Harry Winston Diamond Corp. (NYSE: HWD). Many investors are now bullish on these companies, but it is worth noting that many of them have a lot more U.S. exposure than Tiffany's that has been able to rely on robust international growth to curb losses from lower U.S. consumer spending.

The reality is that Tiffany's saw 40 percent of its sales come from foreign markets with a 20 percent increase in sales volume from abroad, which is substantially higher international exposure than other luxury retailers that could still be hit hard from a U.S. slowdown. This international exposure has been the hallmark of companies that have been able to weather the storm so far this year.

In the end, Tiffany's is definitely still seeing a slowdown in the U.S., but is being helped by strong demand internationally. Investors should look to invest in companies with similar exposure in order to recession-proof their portfolio and prevent any significant losses from a slowdown in the United States.

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Capital Senior Living Corporation (NYSE: CSU) may sound like a boring business but not for shareholders! The company's shares moved sharply higher today after the company announced that it has appointed two new board members and agreed to explore a possible sale. The news comes amid substantial pressure from several activist shareholders that saw unrealized value in the country's largest operator of senior living communities.

The dissident shareholders behind the push included Boston Avenue Management (7.3% owners), West Creek Capital (6.4% owners), and Matthes Capital Management (1.7% owners). New directors from the latter two hedge funds will serve on a committee to explore strategic alternatives, including whether or not to sell Capital Senior Living. Whether or not a sale will actually happen remains to be seen, but the number of activist shareholders and board seats tilts the odds more than usual.

Capital Senior Living also swung to a profit last year after posting a loss in 2006, which substantially improves its marketing in the event of a sale. Additionally, the company's focus on providing significant income and asset growth, strengthening the balance sheet, and improving the comapny's profitability were all realized during its latest earnings announcement.

Revenues, EBITDA, and net income all significantly increased as margins expanded through higher rents and solid expense control. Monthly rental income increased by 4.4% while the average occupancy rate stood at around 90% with management fees around 48%. Additionally, the company expanded its capacity through new developments, consolidations, and in-home services.

Management expects these trends to continue as the company continues to prosper despite a poor economy. Long-term, the baby-boomer population will continue to age and be placed into senior living communities such as these. The company is well positioned as one of the leading operators in the nation and will likely to continue to benefit through these trends despite the tough economic environment.

In the end, the activists believe the stock is undervalued and are seeking to unlock value through a sale process. Meanwhile, the company continues to perform extremely well having swung to a profit and improved in almost every important measure of success. Combined, these factors can only spell good news for shareholders who stand to benefit long-term from the company's success or short-term from the activists' success.

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