The technology market saw an unprecedented buy-out recently as Google has announced it is acquiring Motorola Mobility, the cellphone manufacturer based in Libertyville, Illinois.
Earlier this year, Motorola Inc. was split into two entities: Motorola Mobility, which received the faster growing cellphone and TV box businesses; and Motorola Solutions, which sells networks, accessories like walkie-talkies, and radios.
Compared to Motorola Mobility’s market capitalization (the total number of shares outstanding times the stock price), the sum of $12.5 billion is a massive 63% premium per share. This means that Motorola shareholders will receive $40 per share in cash, which is 63% more than Motorola’s August 14 closing stock price of $24.30. A premium is the difference between what a stock is worth and what price was paid for that stock. The deal marks the Google’s biggest purchase in the 15 year history of the company. I think the huge premium indicates Google was getting desperate to expand its patent portfolio after falling behind to Apple and Microsoft. Furthermore, Google is finally crossing the Rubicon into the hardware market.
In a blog post, Google co-founder and CEO Larry Page wrote that Google bought out Motorola for two reasons:
-Its strength in the smartphone market
-Being a “market leader in the home devices and video solutions business”
Now, Google has gained access to over 17,000 patents, including all of those associated with the Android-capable smartphone. Previously, Google products were available on Android-powered smart phones, but if the deal goes through, Google will have the power to develop and modify both the smart phones and Android software. However, Google has promised to continue offering Android as an open platform, meaning approved web developers will be permitted to improve the functionality of the software. Larry Page has been looking for Google to make itself a legal shelter to Apple’s increasingly aggressive legal attacks, despite the fact that Android was the best-selling smartphone operating system in the second quarter of this year. Despite the news of the buyout, Apple’s stock only dropped $2.93 per share on the market on Tuesday. Apple briefly became the world’s most valuable company in terms of market cap last week, and it still remains at the number two spot.
The acquisition will likely attract the attention of government regulators. Google has already come under review by the U.S. Federal Trade Commission for the following reasons:
-Using deceptive tactics and violation of its own privacy promises to consumers
-Antitrust business practices in Europe and the United States
Although the transaction will take time to be approved by Motorola stockholders and regulators, Google expects it to close by the end of 2011 or early 2012.
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