Google's Acquisition of Motorola Mobility: Will the 'Gamble' Pay Off?

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Case Details:

Case Code : BSTR420
Case Length : 21 Pages
Period : 2010-2011
Pub Date : 2013
Teaching Note :Available
Organization : Google Inc., Motorola Mobility Holdings Inc.
Industry : Mobile devices, Information Technology
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"With mobility continuing to take center stage, the combination with Motorola Mobility is an extremely important event in Google's evolution." 1

-Larry Page, CEO, Google Inc.

"Google will likely promote the Google brand beyond search and maps on these mobile devices. Google will become the digital hub for consumers vying with Apple and even Amazon and Facebook for consumers' attention online." 2

-Michael Gartenberg, Analyst, Gartner. 3

"Mergers of this size rarely work well (or smoothly), even when managed by companies that are very experienced at making huge acquisitions (which Google isn't). ...And, eventually, it's not inconceivable that it will end up the same way the disastrous AOL Time Warner merger did: With a quiet spin-off after years' worth of value destruction." 4

-Henry Boldget, Former Wall-Street Analyst, Editor-in-Chief, Business Insider.

Google's Biggest Acquisition Ever

On August 15, 2011, US-based Internet search major, Google Inc, (Google)e, announced that it had entered into a definitive agreement to acquire Motorola Mobility Holdings Inc.5 (Motorola Mobility) for US$ 12.5 billion6 at US$ 40 per share in cash. Motorola Mobility had been a dedicated partner7 of Google's smartphone operating system, Android. Analysts said that the acquisition, which heralded Google's entry into the hardware segment, would help Google become more competitive in the mobile computing market, and pave the way for it to become a major player in the market for Internet access through mobile devices. The Google-Motorola Mobility deal, according to Reuters, marked the assimilation of mobile hardware with the underlying software.

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Forming a part of the acquisition was a cache of Motorola Mobility's patents in mobile communications and technologies. The patents were likely to help Google defend Android, which had been the target of several patent lawsuits. Google's competitors like Apple Inc.8 (Apple) , Microsoft Corporation9 (Microsoft) , and Oracle Corporation10 (Oracle) , filed several patent suits, not only against Android but also against Android partners like the Samsung Group11 (Samsung) and HTC Corporation12 (HTC) .

Google announced that Motorola Mobility would operate as a separate entity and Android would remain open source software. On the acquisition, Larry Page (Page), Google CEO, said, "Motorola Mobility's total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners, and developers."

Though Page reaffirmed Google's stance on Android, analysts said that the acquisition could alienate Google's Android partners who might suspect Google of giving preferential treatment to Motorola Mobility. According to Nick Dillon, Analyst from Ovum , "Google will move from the position of partner to that of competitor to Android handset manufacturers, potentially placing significant strain on the Android ecosystem."

The acquisition received a mixed response. While a few analysts said it would prove beneficial to Google in many ways, others were not so sure. "The best way to fight a big portfolio of patents is to have your own big portfolio of patents. That appears to be what Google is doing here, arming itself with patents to be able to defend itself in this fast-growing market," said Herbert Hovenkamp, a law professor at the University of Iowa. On the other hand, Standard & Poor's (S&P) downgraded Google, saying the acquisition posed a risk to the company. Equity Analyst Scott Kessler from S&P said that even after acquiring Motorola Mobility, patent challenges remained. He added, "We also believe the purchase would negatively impact Google's growth, margins and balance sheet."

About Google - Next Page>>

1] Matt Jarzemsky, Melodie Warner, Yun-Hee Kim, "2nd Update: Google Agrees to Buy Motorola Mobility for $12.5 Billion,", August 15, 2011.
2] Marguerite Reardon, "Google-Motorola Marriage Good for Consumers,", August 15, 2011.
3] Gartner is a US-based Information Technology research and advisory company.
4] Henry Boldget, "THE VERDICT: Google-Motorola Will Be A Colossal Disaster," August 16, 2011.
5] Motorola Mobility, which was split from Motorola Inc. in January 2011, dealt with smartphones, mobile devices, digital entertainment devices, and video distribution systems, among others
6] The price of US$ 40 per share was a premium of 63% to the closing price of Motorola Mobility on August 12, 2011.
7] Google provided Android fee of cost and it was an open source operating system for smartphones and tablets. Several companies across the world used Android.
8] US-based Apple is involved in designing and marketing consumer electronics, computer software, and personal computers. Some of its products are the Macintosh computers, the iPod digital music player, the iPhone mobile phone, and the iPad tablet computer.
9] US-based Microsoft manufactures and licenses products and services related to computing. It is known for its computer operating systems MS-DOS and Windows.
10] Oracle is a computer technology company that develops hardware systems and enterprise software products.
11] Samsung is a South Korea-based multinational group. It is involved in engineering, electronics, retail, insurance, entertainment, etc.
12] Samsung is a South Korea-based multinational group. It is involved in engineering, electronics, retail, insurance, entertainment, etc.

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