March 5 (Bloomberg) -- Motorola Inc., the world's second- largest mobile-phone maker, may be preparing for a fight to keep billionaire activist Carl Icahn off its board.

``Mr. Icahn's nomination has not been endorsed by your board of directors,'' the company said March 2 in its notice for the 2007 shareholder meeting. ``We urge stockholders not to sign any proxy card that you may receive from the Icahn entities.''

The comments suggest that Motorola may stand up against Icahn as he presses Chief Executive Officer Ed Zander to use all of the company's $11.2 billion in cash to buy back stock and reward investors. Motorola may want to set aside funds to roll out new phones and bolster profit margins as competition mounts.

``Motorola management doesn't want to be as aggressive in buybacks as Mr. Icahn suggests,'' said James Faucette, an analyst at Pacific Crest Securities in Portland, Oregon, who rates Motorola shares ``sector perform'' and doesn't own them. ``They need the flexibility for acquisitions, and having cash on the balance sheet facilitates that.''

The Schaumburg, Illinois-based handset maker said it doesn't know if Icahn's group will nominate him at the meeting or seek investor support from proxy votes. Icahn hasn't filed a proxy statement to shareholders, Motorola spokesman Paul Alfieri said.

Icahn was unavailable to comment, his assistant, Susan Gordon, said.

Motorola shares dropped 14 cents to $18.50 at 4:01 p.m. in New York Stock Exchange composite trading. They have dropped 10 percent this year.

The annual meeting is May 7 at 4:30 p.m. Chicago time.

Fight

Motorola disclosed in January that Icahn, 71, demanded a seat on its board after the company posted a 20 percent drop in 2006 profit. The founder of Icahn Partners LP said last week he plans to buy about $2 billion of Motorola stock, stepping up pressure on Zander.

Motorola's proxy statement is preliminary and is being reviewed by the U.S. Securities and Exchange Commission for as many as 10 days, Alfieri said.

The company has started talks with Icahn, Reuters reported today. Motorola is willing to talk to all shareholders, including Icahn, Alfieri said. He declined to say whether the company has held talks with him. In a Jan. 31 interview, Icahn said he had been in touch with Zander.

Zander, a 60-year-old former Sun Microsystems Inc. executive who joined Motorola in 2004, is working to increase profit margins on the company's phones from an almost four-year low and to win sales from market leader Nokia Oyj.

Pay Drops

As earnings fell, Motorola cut Zander's pay 63 percent, excluding stock options.

His total pay of $11.9 million in 2006 included a salary of $1.5 million, unchanged from a year earlier, the company said in the filing. He received no bonus, compared with $3 million in 2005, and his stock awards fell to $1.75 million from $2.32 million.

He also got option-related awards worth $6.36 million. A comparison to last year is difficult because a new SEC rule spreads the value of executives' grants over a number of years instead of reporting the full value the year they're awarded.

To contact the reporter on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net

Last Updated: March 5, 2007 16:18 EST