Google Buys Motorola Mobility

When Motorola finally split itself into two separate companies, I said that Motorola Solutions ($MSI) was by far the smarter buy. I had been right up until today. Now Google ($GOOG) announced that it’s buying Motorola Mobility($MMI) for $12.5 billion.

The deal, which comes just eight months after the split of Motorola Inc., would give Google control of Motorola Mobility’s attractive patent portfolio after the Internet giant recently missed out on a bid for Nortel Networks Corp.’s (NRTLQ) portfolio. Google, which owns the fast-growing Android operating system used in millions of mobile phones, has a thin portfolio of wireless and telecommunications patents.

Google’s buyout price works out to $40 per share. On Friday, MMI closed at $24.47 so Google is offering a 63% premium. I have to wonder if Google is making the smart move here. Wall Street thinks MMI will earn $1.39 per share next year, so Google is paying 20.8 times that. If the S&P 500 were valued similarly, the index would be over 2,300.

Activist investor Carl Icahn, who is the company’s largest shareholder, had urged Motorola Mobility to explore options for its patent portfolio in the wake of the Nortel deal that attracted multiple bidders.

Following that defeat, Google had preliminary discussions with InterDigital Inc. (IDCC) about a possible acquisition of the wireless technology developer and licenser.

The smartphone and set-top box company split with its sister Motorola Solutions Inc. (MSI), which is focused on business and networking operations, at the beginning of the year. The separation made Motorola Mobility nimbler and more focused on its core operations, but it faces a highly competitive smartphone market, including a persistent threat from Apple Inc.’s (AAPL) iPhone.

Last month, Motorola reported a 28% rise in second-quarter revenue, thanks to strong tablet sales, but the device maker provided weak guidance for the current quarter because of delays in launching speedier 4G devices.

Meanwhile, Google’s second-quarter earnings rose 36% on record revenue as the Internet giant experienced strength in its core search business and gained traction with its newer operations.

Posted by on August 15th, 2011 at 9:54 am


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