Discussion in 'DELETED POSTS' started by EFCC, Aug 19, 2011.
(Reuters) - Google Inc's biggest deal ever, acquiring Motorola Mobility
Holdings Inc for $12.5 billion, is an
attempt to buy insurance against
increasingly aggressive legal attacks
from rivals such as Apple Inc.
The acquisition of one of the mobile
telecommunications industry's most storied
names is Google co-founder Larry Page's boldest
move since taking over as CEO in April, launching
the Internet giant into a lower-margin
manufacturing business and pitting it against many of the 38 other handset companies that
now use its Android software.
Motorola Inc was split this year into two:
Motorola Mobility, which got the faster-growing
cellphone and TV set-top box businesses; and
Motorola Solutions, which sells gear like walkie-
talkies to corporate and government clients.
Google is paying a massive 63 percent premium
to gain access to one of the mobile phone
industry's largest patent libraries. The company
had been under pressure to build a patent
portfolio after losing out to Apple, Microsoft Corp
and others in a recent auction of bankrupt Nortel's assets.
Unlike the Nortel deal and others, the fact that
Google avoided having to compete in an auction
for Motorola by engaging in exclusive
negotiations for the company underscores the
pressure it was under to bolster its patent
portfolio. Paying such a rich premium even though it was the only buyer dovetails with
analysts' view that the increasingly litigious
posture its competitors have taken over
intellectual property left the Internet search giant
with no choice but to pay up.
"No matter how you think about this, you have to
look at it through the spectrum of the Android
ecosystem under incredible attack from an IP
(intellectual property) perspective. And this is
Google going out and trying to fix that," said W.P.
Stewart Advisors Chief Investment Officer Jim Tierney. "The biggest implication here is that
Google wants Android to be one of the dominant
phone operating systems for years to come."
Wall Street quickly anointed Microsoft a winner in
this deal, with Windows benefiting should the
move spur current Android partners to explore
The deal also stoked speculation that struggling
Nokia and Research in Motion would become
takeover targets themselves, sending Nokia's
shares up 17.35 percent and RIM's up 10.3
Google made its first foray into hardware by co-
developing the Nexus One phone with HTC in
2010 -- an effort that met mixed results.
Monday's deal, however, could mark the start of a
shift to an Apple-style model, integrating mobile
hardware with underlying software.
"Google decided to cross the Rubicon on the
device side," said Fred Huet, head of telecoms and media consultancy Greenwich Consulting. "There has been growing frustration (at Google) about the lack and speed of internet centric devices.
"With Nexus they tried to show the industry what
they thought was the right evolution for
handsets and it did not have an impact .... With
the patents they make sure that Android stays
THE MORE THINGS CHANGE ...
The acquisition is likely to draw even closer regulatory scrutiny than usual, with the search leader already the subject of antitrust inquiries.
Experts will want to review how it affects mobile
But the deal -- which took Wall Street by surprise
-- appears to mark a shift in strategy from
Google's traditional Internet search and
advertising empire and forays into video and
"The danger is that other handset makers feel
disenfranchised," said Nomura Securities global
technology specialist Richard Windsor. "Motorola
is the weaker player. This could actually collapse
the entire community.
" Page, who also launched the ambitious Google+
social network since taking over as CEO,
reassured investors on Monday this would not
happen, saying Motorola will be run as a separate
company licensing Android software in the same
way as rivals like HTC Corp and LG Electronics.
Phone makers including Samsung officially said
they welcomed a deal that will aid their own legal
battles, but some analysts questioned the
sincerity of those claims, noting that rival
companies would now be unlikely to heavily
promote Android since it would benefit a direct competitor.
Andy Lees, president of the Windows Phone
Division at Microsoft, said in a statement that,
"Investing in a broad and truly open mobile
ecosystem is important for the industry and
consumers alike, and Windows Phone is now the
only platform that does so with equal opportunity for all partners." Some analysts also doubt that Google will
continue manufacturing handsets in the long
"We don't think they necessarily want to be in the
handset business. They want those patents first
and foremost," said Brian Pitz, an analyst at UBS.
"This is really a game of protection."
Analysts say that Google's rivals are likely to
continue to enforce their patent rights on mobile
devices through legal means. Microsoft, for
instance, recently settled a lawsuit with HTC over
the Taiwanese company's Android devices. Oracle
is also seeking billions of dollars from Google for infringing on Java patents. Analysts expect Apple
to continue its increasingly effective patent war
against its rivals as well, which could hurt Google
by potentially raising licensing costs that need to
be paid to Apple. While Apple's iPhone leads in market prestige and
is considered more innovative, Android has
managed to quietly surpass it in market share.
Android held a 43.4 percent share of the
smartphone market at the end of the second
quarter, ahead of Nokia's 22 percent, according to Gartner data. Apple ranked third with 18
percent, the data showed.
Shares of Motorola Mobility jumped more than 55
percent on the news, while Google shares fell by
roughly 1 percent. The deal values Motorola Mobility at $40 per share
in cash, a 63 percent premium to its Friday
closing price. The terms of the deal also features
an unusually rich reverse breakup fee of $2.5
billion, according to a source close to the
situation. "It's a deal that will take time to pay off, but they
have a lot of cash and they want to chase after
profit," BGC Partners analyst Colin Gillis said. The deal delivers a windfall for investors
including Carl Icahn, Motorola's top shareholder
with a stake of just over 11 percent. The activist
shareholder had been urging Motorola to look
into splitting off its patent business -- one of the
biggest in the industry -- from its handset business, ranked eighth in the world by Gartner
in terms of unit sales. In late July, Icahn even
went so far as to estimate that Motorola could be
worth $44 per share, or $13 billion in a sale. Despite cashing out for $4 less than what he
estimated the company was worth, Icahn said he
was "quite happy with this result." It's unclear how much Icahn spent on his stake in
Motorola since he started scooping up shares in
2007, but regulatory filings indicate it may have
been about $3 billion. His stake in Motorola
Mobility is worth about $1.34 billion at the deal
price, up by $520 million since Friday. Including his stake in Motorola Solutions, Icahn's total stake
is about about $2.9 billion in the two companies.
INTO THE LIVING ROOM
As part of the deal, Google also gets Motorola's
set-top box businesses, giving its nascent TV
operation a much-needed boost by providing it
with a more direct route into the home. Bernstein analyst Craig Moffett noted that Google,
a frequent disrupter of the pay-television market
via its ownership of YouTube and launching of
over-the-top TV products that allow consumers to
get streaming video in the home, will now be one
of its largest suppliers.
"It will be fascinating to see whether this tempers
their enthusiasm for disruptive business models
as they have to face the practical realities of
satisfying their cable customers," said Moffett. "I
think the cable industry would be delighted to
see Google inside the tent."
Google said it expects the deal to close by the end
of 2011 or early in 2012, and that it was
confident it would gain the regulatory approvals
required in the United States and Europe and the
blessing of Motorola Mobility's shareholders
Others aren't so sure.
"The legal question here is would this deal give
Google the incentive to make Android less open
or somehow discriminate against the other smart
phone and tablet makers," said Beau W. Buffier, a
lawyer with Shearman & Sterling LLP. "That will be
the key issues in any review both here in the U.S. or in Europe."
The fact that the deal has the support of other
major mobile device players who have a stake in
the matter should help Google in the regulatory
process. Lazard advised Google on the deal, while Motorola
used Centerview Partners and Frank Quattrone's
Qatalyst Partners, sources told Reuters.
Culled from Reuters
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