Leading handset maker Motorola Mobility (MMI) has agreed to be acquired by Internet search giant Google (GOOG). Under terms of the deal, Motorola stockholders would receive $40 in cash for each share held, for a total value of $12.5 billion, which represents a 63% premium to MMI's preannouncement closing price. The transaction was unanimously approved by the boards of directors of both companies and currently awaits regulatory and shareholder approval. The deal is expected to close by late 2011 or early 2012.
Motorola Mobility is one of Google's closest collaborators in the mobile space and one of its staunchest supporters. Indeed, the marriage of these long-time partners is expected to improve the user experience on Google's fast-growing Android operating system and accelerate innovation.
Perhaps more important, Motorola Mobility's strong patent portfolio should be an asset to Google as the mobile device market becomes increasingly combative. In fact, although Google has been on a roll in many regards, the company has suffered a few setbacks in the race among tech heavyweights for intellectual property rights. Most recently, Google came up short in a bidding war for the patent portfolios of software maker Novell and defunct telecom equipment manufacturer Nortel, losing out to a consortium that included Apple (AAPL), Microsoft (MSFT – Free Microsoft Stock Report), and Research In Motion (RIMM).
Plans are also in place to optimize Motorola Mobility's set-top box business, as the transition to Internet Protocol devices gains more traction. Motorola Mobility would be run as a separate business, with its current executives and employees staying on. It will remain a licensee of Android while still allowing the operating system to be an open platform, assuring its other handset partners.
Nevertheless, we believe the new relationship may provide Motorola Mobility with a leg-up on Google's other hardware makers, perhaps allowing it to develop new features and receive software updates in a more timely manner.
Motorola Mobility stock soared on the news. The announcement reverberated throughout the tech sector, with shares of other hardware makers, namely Nokia (NOK) and Research In Motion, trading higher on speculation that they may be buyout candidates as well. The news seemed to have the opposite effect on InterDigital (IDCC) stock. The company, which engages in the design and development of wireless technologies, had been rumored in recent months as a potential acquisition target for Google. But IDCC dropped sharply on this latest news, since the deal for Motorola Mobility casts some doubt that a buyout of InterDigital is around the corner.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.