Internet giant Google (Nasdaq: GOOG) has made the biggest acquisition in its 13-year history. It is paying $12.5bn in cash for Motorola Mobility (NYSE: MMI), a maker of handsets and other electronic devices that floated late last year. Google is paying a 63% premium to Motorola’s pre-bid share price.
What the commentators said
This deal is about “arming Android”, said Economist.com. Android, Google’s operating system for smartphones, is becoming increasingly expensive for handset makers to use. That’s because “it’s almost impossible to develop a new handset” without infringing on someone’s property, added David Crow in CITY A.M.
So there’s now an “arms race” going on, whereby companies scoop up patents to pre-empt legal action against them. Motorola boasts 25,000 patents. A consortium led by Apple and Microsoft recently paid Nortel Networks $4.5bn for 6,000 patents, said Michael J de la Merced in The New York Times. Analysts at Jefferies reckon Google has paid $9.5bn for Motorola’s patents.
What else is it paying for? There is, said David Prosser in The Independent, scope for “finally breaking into television”, as Motorola has a market-leading set-top box business. Google will also now have control of both software and hardware for phones, enabling it to integrate these more smoothly and improve the experience for customers.
Having both hardware and software, said Ben Wood of CCS Insight, “has been Apple’s secret sauce”. A slight risk, however, is that other handset makers who use Android could be discouraged from doing so if they think that Motorola is now “going to have first bite of the cherry on…every improvement in the software”, said Prosser. However, Google says it will not change how it manages Android and that Motorola won’t get special favours. “As long as it keeps its word, the handset makers should remain onside.”