NEW YORK (Reuters) - Activist investor Carl Icahn urged Motorola to consider splitting off its patent portfolio to cash in on surging interest in wireless technology from companies like Google Inc and Apple Inc.
Shares of Motorola Mobility Holdings Inc rose as much as 23 percent on Thursday as investors bet that Icahn's activism could result in a high valuation for the patents, after a hotly contested Nortel patent auction recently fetched $4.5 billion.
Icahn, Motorola's biggest shareholder with an 11.36 percent stake, told Reuters there are many ways the company could make more money out of its patents while still retaining support for its cellphone and set-top box businesses.
"One way might be to split off the operating company," the billionaire investor said, adding the handset and set-top box businesses could still have free use of the patents after such a move.
"In any event we shouldn't let the tail wag the dog," said Icahn. "The patent portfolio may be the company's most valuable asset."
Companies with strong patent holdings can force rivals to pay fees for using their technology or to form cross-licensing agreements. The recent Nortel auction, and the announcement that InterDigital Inc and Eastman Kodak were shopping around their patents, underscores strong interest.
Icahn estimated that Motorola could be worth as much as $44 per share, or $13 billion, in a sum of its parts valuation. That is far above the $25.19 that Motorola shares closed at on Thursday, giving it a market value of $7.4 billion.
His estimate assumes a $4 billion valuation for the patent portfolio, $2.5 billion for the set-top box business, $3 billion for the handset business, and $3.5 billion in cash.
ThinkEquity analyst Mark McKechnie said Motorola deserves a higher valuation because of its wireless patents but his $27 price target for the stock is well below Icahn's estimate.
Google, which has a weak IP portfolio, is expected to be interested in buying wireless patents after losing the Nortel auction. Google could strike a deal with Motorola to use the handset maker's patent portfolio to protect Android phone makers from lawsuits from rivals, analysts said.
Apple has sued Android phone makers Samsung Electronics Co and HTC Corp for patent infringement.
Some analysts were skeptical about the wisdom of Motorola selling its patents, saying the company would then be just a hardware maker and its licensing expenses would go up.
"They're likely already receiving a lot of revenue from their patents," said Morgan Keegan analyst Tavis McCourt. "It's unclear what they can do to create more value from the patent portfolio ... without just selling the company."
Icahn became an investor in Motorola Inc after the company's business started to go downhill in 2006 as its phones became less popular. He criticized management at the time and pushed for a breakup of the company to improve its valuation.
He succeeded in getting Motorola to split in two in the first quarter this year to form Motorola Mobility and Motorola Solutions Inc. Another split would decimate the one time global wireless powerhouse that invented the cellphone.
Icahn went to Motorola to discuss its options after InterDigital, another big wireless patent holder, said it would consider putting itself up for sale on Tuesday. That news drove InterDigital shares up nearly 80 percent.
On Wednesday, Kodak said it was shopping around its patents for digital imaging, sending shares higher.
Icahn said in a regulatory filing that Motorola's patent portfolio is substantially larger than the 6,000 patents Nortel sold to a group including Apple, Microsoft and Research in Motion Ltd that outbid Google.
In response to the filing, Motorola said it always reviews its options, but declined to give specifics.
The company, which holds 17,000 approved patents and has another 7,500 pending approval, said its ability to develop innovative products and grow revenue is in part attributed to its strong patent portfolio.
One analyst questioned whether a large patent sale made sense for Motorola, despite Icahn's move.
"He'll be in management's ear," Avian Securities analyst Matthew Thornton said. "It's good news. It draws attention to a valuable asset."
Editing by Richard Chang, Tiffany Wu and Robert MacMillan