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Motorola's chip unit files for $2 b IPO

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CIOL Bureau
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Ben Klayman



CHICAGO: Motorola Inc. filed with U.S. regulators a road map for a $2 billion spinoff of its struggling semiconductor unit, in a move to focus more closely on its cell-phone and other businesses.



The regulatory filing comes one day after the world's No. 2 cell-phone maker named former Sun Microsystems Inc. President Edward Zander as its chairman and chief executive. He will replace Christopher Galvin, who in September announced his departure due to strategic differences with the board.

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The spinoff of the unit, which is temporarily called SPS Spinco Inc., allows Motorola to concentrate on its battles with larger Finnish rival Nokia and several South Korean competitors in the mobile phone market. It would create one of the world's largest semiconductor companies, serving the automotive, networking and wireless communications industries.



Motorola's shares closed off 1.2 percent, or 16 cents, at $13.17 in trading on the New York Stock Exchange.

The Schaumburg, Illinois, company first announced in October plans to spin off the chip business, a move Zander said he supports. It is a move long sought by many analysts and investors.



Motorola's semiconductor unit accounts for about $5 billion of the company's $27 billion in annual revenue, but the business weighed on Motorola as the unit struggled to return to profitability amid the slowdown in the global chip industry.





The chip unit, which employs about 23,000 people, was the only major Motorola business to post an operating loss in the third quarter.



Since the second half of 2000, the unit has slashed its work force by 11,000 people and reduced its manufacturing facilities to 10 from 22. Another plant is being sold to a Chinese company.



SPS Spinco said the spinoff would create a more focused company able to more easily expand its customer base because it would no longer be a Motorola unit. Through September, Motorola's other businesses accounted for about 23 percent of the chip unit's sales.

SPS Spinco said it will negotiate agreements with Motorola regarding the transfer of assets and liabilities, including patents. The chip unit and Motorola also will sign multiyear purchase and supply agreements, under which SPS Spinco will supply almost all of Motorola's cell-phone chips through 2006.

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The chip business said it does not see paying a cash dividend for the foreseeable future, and will likely need to acquire other assets, including software development resources.



SPS Spinco did not say in the filing with the U.S. Securities and Exchange Commission how many Class A common shares it plans to float or provide an estimated price range, other than to say the initial public offering would have a value of up to $2 billion. Those details are expected in future filings.

SPS Spinco said Motorola will own all of the outstanding shares of the unit's Class B common stock, which carries five votes per share. Motorola will own at least 80 percent of the voting power, according to the filing.

After the spinoff, Motorola expects to distribute its remaining stake to its common shareholders by the end of 2004 via a special dividend, which would be tax free.



The Austin, Texas-based business did not provide a proposed ticker symbol and said it plans to change its name prior to the IPO's completion.

SPS Spinco did not say how much of the offering's proceeds it plans to distribute to Motorola as part of the separation. It plans to use the remaining proceeds for general corporate purposes.



Goldman, Sachs & Co. was listed in the prospectus as the underwriter.

(Additional reporting by John Poirier in Washington)



Reuters

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