The acquisition of Motorola Mobility presents the strongest means at Google’s disposal to challenge Apple’s dominance. Whether Google can pull that off remains to be seen
As the boards of directors of Google and Motorola Mobility approved the $12.5 billion (or $40 per share) buyout of the latter by the former on August 15, 2011, the $3.1 billion purchase of online advertising firm DoubleClick, Google’s largest acquisition so far, was a thing of the past. And so was Google’s status as just a notable search engine giant. It was now a hardware manufacturer too, challenging its arch rival Apple more directly than its Android licensing programme allowed it to, especially in terms of a more tightly integrated multi-screen proposition.
Interestingly, Google also offered Motorola Mobility a significant reverse termination fee – a whopping $2.5 billion – to guarantee that it will remain committed to the deal. That’s around 20% of the total purchase price. Remove Motorola’s $3 billion in cash on hand from the purchase price, and the fee forms an eye-popping 26% of Google’s total consideration, way above the normal reverse termination fees, which usually run 4-10% of any given transaction. Further, Google is paying 63.5% more than Motorola Mobility’s closing price on the New York Stock Exchange on August 12, 2011. Considering that the average premium of more than 360 deals in the wireless-equipment industry on that basis was 32% in the past five years (Bloomberg data), it’s certainly big money that Google is paying for a company that has been struggling to remain profitable in recent months.
For information, Motorola Mobilty posted net losses of $81 million & $56 million in the first and second quarter of 2011. Moreover, while the global handset market has been growing at a smart pace (global mobile phone shipments rose 13% y-o-y in Q2 2011), Motorola has failed to keep up with the competition. In fact, in Q2, Motorola shipped just 10.6 million handsets (out of which 4.4 million were smartphones), as compared to its peak of 65 million handsets in Q4 2006.
The reason is clear. Google did not join hands with Motorola for its global handset reach or even brand equity for that matter as its current market share is less than 2.5%. The main reason for this historic deal is the recent legal context surrounding smartphone IP. In fact, Google’s deal for Motorola comes a month after it lost a bid to a consortium (which included Apple, Microsoft, RIM, Ericsson & Sony) for 6,000 patents from the Canadian Nortel. For Google, which faces an increasing number of patent infringement claims against its Android system, the loss was a major blow. Thus, the deal, which requires regulatory approval and is expected to close by the end of 2011 or early 2012, would give Google a quiver with more than 17,000 patents (with an additional 7,500 pending) that would help it defend Android OS from a barrage of patent lawsuits from its rivals. Besides this, Motorola Mobility is a leading maker of TV set-top boxes and the acquisition could stage a comeback for the troubled Google TV. Further, owning a handset manufacturer allows Google to better integrate software and hardware. No doubt, with the Motorola buyout, Google is trying to take a leaf out of Apple’s book by becoming more vertically integrated. But the question is, can it succeed?
Interestingly, Google also offered Motorola Mobility a significant reverse termination fee – a whopping $2.5 billion – to guarantee that it will remain committed to the deal. That’s around 20% of the total purchase price. Remove Motorola’s $3 billion in cash on hand from the purchase price, and the fee forms an eye-popping 26% of Google’s total consideration, way above the normal reverse termination fees, which usually run 4-10% of any given transaction. Further, Google is paying 63.5% more than Motorola Mobility’s closing price on the New York Stock Exchange on August 12, 2011. Considering that the average premium of more than 360 deals in the wireless-equipment industry on that basis was 32% in the past five years (Bloomberg data), it’s certainly big money that Google is paying for a company that has been struggling to remain profitable in recent months.
For information, Motorola Mobilty posted net losses of $81 million & $56 million in the first and second quarter of 2011. Moreover, while the global handset market has been growing at a smart pace (global mobile phone shipments rose 13% y-o-y in Q2 2011), Motorola has failed to keep up with the competition. In fact, in Q2, Motorola shipped just 10.6 million handsets (out of which 4.4 million were smartphones), as compared to its peak of 65 million handsets in Q4 2006.
The reason is clear. Google did not join hands with Motorola for its global handset reach or even brand equity for that matter as its current market share is less than 2.5%. The main reason for this historic deal is the recent legal context surrounding smartphone IP. In fact, Google’s deal for Motorola comes a month after it lost a bid to a consortium (which included Apple, Microsoft, RIM, Ericsson & Sony) for 6,000 patents from the Canadian Nortel. For Google, which faces an increasing number of patent infringement claims against its Android system, the loss was a major blow. Thus, the deal, which requires regulatory approval and is expected to close by the end of 2011 or early 2012, would give Google a quiver with more than 17,000 patents (with an additional 7,500 pending) that would help it defend Android OS from a barrage of patent lawsuits from its rivals. Besides this, Motorola Mobility is a leading maker of TV set-top boxes and the acquisition could stage a comeback for the troubled Google TV. Further, owning a handset manufacturer allows Google to better integrate software and hardware. No doubt, with the Motorola buyout, Google is trying to take a leaf out of Apple’s book by becoming more vertically integrated. But the question is, can it succeed?
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
