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M&A Google and Motorola Mobility
5
Question 2
Why is there a premium in
M&A deals?
Question 1
Who was the target firm
of this deal?
Summary
Conclusion
-Google to buy Motorola Mobility: $12.5 billion
-Breakup Agreement :
Google: Pay $2.5 billion
Motorola: Pay $375 million
-Push the web company into smartphones
-Google gain > 17,000 patents
- in Shareholder value
-Motorola share price 56% and Google 1.2%
-Horizontal & Vertical Merger
The two main goals of Motorola acquisition:
- Patents to increase leverage
- Introduction of Smartphone to compete
Motorola smartphone (X phone) still in doubt, With Google possibly aiming to axe project entirely.
Remains to be seen whether deal was worth it for
Reasons to Acquire for Google
1.Intellectual
Property
(patents)
Enhance their position
Strong Patent Portfolio
- level the playing field between Google's competitors i.e Apple and Microsoft
- creates barrier to market entry
- previously had only 1000 patents but acquired Motorola's 17,000 patents
- protect against anti- competitive threats
Leverage in negotiations
with Apple
- allows for cross- licensing opportunities
2. Expand into
different markets
&
Mobile phones
TV and Internet
- increase adoption of GoogleTV service and the use of Android and its chrome browser
- distribute Google's software, i.e Android through mobile phones
Reasons to Acquire for Google
3. Cost-Reduction
4. Improved Coordination
Economies of Scale
Economies of Scope
- Technical
- Bulk-Buying
- Financial
- Organisational
Size Fit
Timing Fit
Communication Fit
Reason to Acquire for Motorola Mobility
Loss of Profitability
- Motorola recorded a record $1.2 billion loss in Q4 2007
- GFC worsened the situation
- after spin off in 2011, Motorola Mobility lost a fifth of share value
Post Merger Performance
Post Announcement - Regulatory Approval
- All mergers are required to gain regulatory approval before being finalised
- US Department of Justice approved on February 13,2012 and shortly followed by the European Commission
- Finalised when approved by the Chinese Government on 22nd May, 2012
- Patents have so far not been of much value to Google
- Attempts to use the patents to protect android software & challenge Microsoft and Google yet to yield any major results
- Major disputes in Germany led to rulings in favour of Microsoft - Motorola android devices currently banned from sale in Germany
- Within first six months 4000 (20%)
of Motorola staff made redundant
- Closure of many facilities - exit markets
- large costs and lowly earnings - currently unprofitable
- Google's stock price has risen from $600.80 to $801.42 in one year since merger
- Google P/E ratio
- Announcement: 20.10
- Deal Approved: 18.80
- 6 months after: 21