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Monday, September 18, 2006

Is Motorola On The M&A Path?

Stocks: (MOT)(SBL)(NT)(ALA)(LU)(SI)(NOK)

Motorola was rumored to be buying Symbol Technologies, the maker of bar code scanning devices. The Wall Street Journal says that the company could go for as much as $15 a share. That price is about a 20% premium to where symbol trades now.

The cost of buying Symbol may not justify the premium. Last November, Symbol was an $8 stock. So, the real premium is about twice 52-week low. The revenue at Symbol has been flat the last four quarter at about $445 million, and operating income in the last quarter was a little over $44 million.

The price that Symbol mat fetch would be about two times revenue, while Motorola trades at 1.46 times. It also begs the question of why a company with a market cap of $60 million would spend a lot of management time and effort on a company with a market cap of $3 billion.

By contrast, Motorola could buy Nortel for $10 billion and get a company with $10.5 billion in revenue. Nortel’s business is right in the sweet spot of Motorola’s. Nortel’s wireless business, its network equipment business and cable operations business would fit into the Motorola portfolio, and Nortel’s CEO is a former member of senior management at Motorola. A combined Motorla/Nortel would be in a better position to compete with the new Alcatel/Lucent merged entity and the new Siemens/Nokia joint venture that puts together their telecom equipment manufacturing businesses.

In several statements release by Nortel, the company says that it will focus on the future of so-called “4G”, WiMax and CDMA Version C. Motorola is at the heart of WiMax along with Intel and Samsung.

Symbol Technologies may be a nice, small bite for Motorola, but it’s not the main event.

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