Motorola 3-month chart

Motorola Inc. announced plans Wednesday to cleave its struggling wireless handset business from other operations, forming two separate publicly traded companies after months of agitation from frustrated investors.

The Illinois-based cellphone maker has been under pressure from billionaire U.S. investor Carl Icahn for changes meant to revitalize its cellphone business. The cellphone unit has seen its sales plummet, with the company unable to produce a second act to the once-popular Razr phone.

Motorola said the handset business will operate separately from another company that will encompass its home and networks business, which sells TV set-top boxes and modems, as well as its enterprise mobility solutions, which sells computing and communications equipment to businesses.

"Our priorities have not changed with today's announcement," chief executive Greg Brown said in a statement. "We remain committed to improving the performance of our mobile devices business by delivering compelling products that meet the needs of customers and consumers around the world."

Schaumburg, Ill.-based Motorola said it hopes the transaction will be tax-free, allowing shareholders to own stock in both of the new companies. If the deal is approved, the two units will be separated in 2009.

Brown said Motorola will launch a search for a new CEO of the mobile devices business as it works to regain favour with customers and its No. 2 position in the cellphone market.

Motorola lost that spot last year to rival Samsung Electronics Co. Finland's Nokia Corp. is the industry leader.

"We believe strongly in our brand, our people and our intellectual property, and expect that the mobile devices business will be well-positioned to regain market leadership as a focused, independent company," Brown said.

Latest shakeup

Wednesday's announcement was just the latest shakeup at Motorola, which rode the success of the iconic Razr phone from 2005 to 2006, but has stumbled since amid stiff competition.

Last year, the company pulled back from developing markets and cut 7,500 jobs, while CEO Ed Zander resigned.

A flock of executives have left the company this year, and more cuts and changes are likely as the new management team scrambles to retain control in the face of a revived threat from Icahn.

Icahn, who has been steadily increasing his Motorola position, disclosed in a filing this month that he now owns 142,362,000 million shares, or 6.3 per cent — up from five per cent a month ago.

Wednesday's announcement came two days after Icahn sued Motorola, seeking documents about its executives and its cellphone business.

Icahn plans to use the material in his battle to win four seats on the Schaumburg-based company's board, his second proxy fight in two years with Motorola. He rejected a concessionary offer of two seats from the company.

A message left with Icahn's office was not immediately returned.

Motorola shares closed up 26 cents at $10.02 US in New York.