Motorola Mobility, Motorola Solutions surge on first trading day
John Pletz
(Crain's) — Shares of Motorola's cell phone business surged Tuesday after it split from its Schaumburg-based parent company, one day ahead of a major new consumer-product launch.
Motorola Mobility Holdings Inc.'s shares gained $2.88, or more than 9.5%, on the day to close at $33.12 per share. Early in the day the stock rose as much as 12%.
Shares of Motorola Solutions Inc., which sells police radios and bar-code scanners, rose $2.46, or 6.6%, to close at $39.77 per share.
Motorola Mobility is expected to launch a new tablet computer to compete with Apple Inc.'s iPad on Wednesday ahead of the start of the Consumer Electronics Show, a major trade event, in Las Vegas. Motorola's tablet is expected to carry a new variant of Google Inc.'s Android software, which is designed for tablet computers.
The surge in the shares of Motorola Mobility was a surprise that one analyst attributed to hedge funds buying into the stock, looking for momentum from the split and the tablet announcement. Motorola is one of several electronics makers expected to launch new Android-powered tablets during CES.
After ringing the opening bell at the New York Stock Exchange on Tuesday, Sanjay Jha, CEO of Motorola Mobility, hinted to reporters that the long-awaited tablet announcement was coming. Greg Brown, CEO of Motorola Solutions, was scheduled to ring the closing bell.
Also Tuesday, Pension Benefit Guaranty Corp. said the company will make an additional $100-million contribution over five years to its pension plan, which affects about 87,000 workers and retirees. PBGC, which monitors and guarantees pensions, looked at Motorola's pension obligations when the company announced it would split into two companies.
The $100-million infusion goes beyond minimum legal requirements, said the agency, which routinely monitors mergers and other corporate transactions for pension implications. However, Motorola's pension had a $1.9-billion shortfall at the end of 2009, and analysts expect Motorola Solutions ultimately will have to contribute more than $100 million annually in the next several years.
The Motorola pension plan was closed to new employees in 2005. And the company froze benefit levels in 2009 as it drastically slashed costs to survive the recession.
Motorola Solutions ended up with most of the former parent company's liabilities, including general debt and pension obligations. Fitch Ratings upgraded Motorola's $4.4 billion in debt one notch to BBB, slightly above junk status. Standard & Poor's also raised its ratings to BBB and removed the company from its watch list.
"The higher rating incorporates our view that the business risk profile of the new Motorola Solutions is satisfactory," said Standard & Poor's credit analyst Lucy Patricola in a statement. This is based on the "stability of its markets, the high priority of its public safety solutions, and the high barriers to entry that protect its competitive position," she added.
(The Associated Press contributed to this report.)