Google Inc. (GOOG), maker of the Android mobile-phone software, agreed to buy smartphone maker Motorola Mobility Holdings Inc. for $12.5 billion in its biggest deal, gaining mobile patents and expanding in the hardware business.
Motorola shareholders will get $40 a share in cash, the companies said in a statement today. That’s 63 percent more than Motorola Mobility’s closing price on the New York Stock Exchange on Aug. 12. Both boards have approved the takeover.
Larry Page, Google’s co-founder who took over as chief executive officer in April, is transforming Google into a smartphone maker to take on Apple Inc. (AAPL)’s iPhone and gain more clout in the wireless business. Motorola Mobility, under pressure to seek strategic changes by activist investor Carl Icahn, gives Google more than 17,000 patents the company can leverage in negotiations with competitors such as Apple.
“This is the next step in building their position in the mobile world so they can distribute Google products and services through mobile phones and tablets,” said Clayton Moran, an analyst at Benchmark Co. in Boca Raton, Florida, who recommends Google shares. “They want a success with the Android platform and this will enhance their position in the mobile marketplace, as well as defend their position through the patent portfolio.”
Apple, which makes its own wireless software and hardware, briefly became the most valuable company in the world last week, helped by demand for the iPhone and the iPad tablet computer.
Motorola Mobility, based in Libertyville, Illinois, rose $13.92, or 57 percent, to $38.40 at 10:23 a.m. on the New York Stock Exchange. Google, based in Mountain View, California, fell $5.77, or 1 percent, to $558 on the Nasdaq Stock Market. InterDigital Inc., owner of mobile-phone patents that’s considering a sale, fell $14.87, or 20 percent, to $60.85.
‘Heck of a Premium’
Google is paying a premium of 73 percent compared with Motorola Mobility’s 20-day trading average price before today. The average premium of more than 360 deals in the wireless- equipment industry on that basis was 32 percent in the past five years, according to Bloomberg data.
“This is a heck of a premium” said Lee Simpson, an analyst at Jefferies International in London. Motorola Mobility’s patents are “a good counterweight if Apple comes after Google.”
Google agreed to pay Motorola Mobility $2.5 billion if the deal falls through, a person familiar with the matter said. Jennifer Erickson, a spokeswoman for Motorola Mobility, declined to comment on the breakup fee.
The deal — the largest wireless-equipment deal in at least a decade, according to data compiled by Bloomberg — also makes Google a competitor to the other handset makers that use Android. In addition to phones made by Motorola Mobility, the software runs handsets made by companies such as Samsung Electronics Co. and HTC Corp.
“Google making an acquisition of one distinct player is going to put Samsung and HTC back on their heels and thinking, ‘Do we need to go forward with this platform?’” Simpson said. “‘Are there other platforms we can use?’ It might start to put Microsoft into focus as an alternative platform,” he said, referring to Microsoft Corp. (MSFT)’s Windows Mobile software.
Android, which Google gives away for free, will remain available to other manufacturers, the company said. Winston Yung, chief financial officer of HTC, gave his support to the deal, saying it will strengthen “the whole Android ecosystem.”
Google said Samsung and Android-phone manufacturers Sony Ericsson Mobile Communications AB and LG Electronics Inc. also support the transaction.
Microsoft rose 35 cents, or 1.4 percent, to $25.45 in early trading. Nokia Oyj, which plans to start making Windows phones, climbed 10 percent to 4.14 euros in Helsinki.
Android was the best-selling smartphone operating system in the second quarter as sales rose more than fourfold to 43.3 percent of the market, led by Samsung and HTC, according to research firm Gartner Inc. Apple had an 18.2 percent share, the researcher said. While Motorola Mobility’s Droid phones have found a following in the U.S., globally the company ranks outside the top players in the smartphone market.
“The combination of the two companies is going to create tremendous shareholder value, drive great user experiences and accelerate innovation,” Page said today on a conference call. “Motorola also has a strong patent portfolio, which will help protect Android from anticompetitive threats from Microsoft, Apple and other companies.”
End for Pioneer
The deal marks an end as an independent company for a company that helped pioneer mobile phones and introduced its first consumer handset in the early 1980s.
Motorola announced a plan to spin off its mobile-phone business in March 2008 amid market share losses and pressure from billionaire Icahn. The company then delayed the move amid the global recession before completing the split in January. Motorola Inc. became Motorola Solutions Inc., which makes radio equipment to emergency workers and scanning devices for retailers.
Last month, Icahn urged Motorola Mobility to explore alternatives for its patent portfolio after Nortel Networks Corp. sold wireless-technology intellectual property for $4.5 billion.
“This is a great outcome for all shareholders of Motorola Mobility, especially in light of today’s markets,” Icahn said today in a statement. “Motorola is activism at its best and we applaud management and the board for acting so responsibly.”
Since the January spinoff, Motorola Mobility shares have lost about a fifth of their value as the company has struggled to return to profitability and keep pace with larger rivals such as Samsung and Apple.
Qatalyst Partners advised Motorola and Wachtell, Lipton, Rosen & Katz LLP provided legal help. Lazard Ltd. advised Google and Cleary Gottlieb Steen & Hamilton LLP was the legal counsel.
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