Google-Motorola was a panic buy

Google was so jumpy about acquiring Motorola Mobility that it upped its price by US$3 billion, even though no one else appeared to want the smartphone maker.
Written by Larry Dignan, Contributor on

Google was so jumpy about acquiring Motorola Mobility that it upped its price by US$3 billion, even though no one else appeared to want the smartphone maker.

The details of the Google-Motorola Mobility acquisition appeared in a proxy filing, which illustrates that Google was haunted by the Nortel patent auction, and needed an intellectual property boost. For its part, Motorola Mobility was also worried about its ability to handle lawsuits. The two companies needed each other.

The proxy sets up how patents were a hot topic as soon as CEOs Larry Page (Google) and Motorola Mobility (Sanjay Jha) met about a potential deal (licensing or acquisition) in mid July:

In early July 2011, Andrew Rubin, senior vice president of Mobile at Google, contacted Dr Jha, chairman and chief executive officer of Motorola Mobility, to request a meeting to discuss the purchase by some of Google's competitors of the patent portfolio of Nortel Networks Corporation and its subsidiaries (which we refer to in this proxy statement as "Nortel") in an auction conducted by Nortel in June 2011, and the possible impact of and potential responses to the purchase.

Other execs joined in:

The parties also discussed the impact of the Nortel auction, intellectual property litigation and the potential impact of such litigation on the Android ecosystem, Motorola Mobility's patent portfolio and potential strategic options relating to the Motorola Mobility patent portfolio and Motorola Mobility, including the potential sale of Motorola Mobility to Google.

Jha also noted that Motorola Mobility didn't have the resources to fight lawsuits non-stop.

Then Carl Icahn, who owned 11 per cent of Motorola Mobility, entered the picture. As the talks proceeded, Google figured it would offer US$30 in cash per Motorola Mobility share. Motorola Mobility figured that wasn't enough. Icahn and the board noted that Google seemed willing to go higher. From the proxy:

On 5 August 2011, the Motorola Mobility board of directors met telephonically, including representatives of its financial and legal advisors, to discuss a response to Google. After consideration of a number of factors, including the then-current status of the intellectual property litigation, and the prospects of settling some or all of the intellectual property litigation, Google's willingness to negotiate improved terms and concerns regarding the risks of an unauthorised public disclosure of the Google proposal, the Motorola Mobility board of directors instructed Qatalyst Partners and management to reject Google's proposed US$30 per share purchase price, and determine whether Google would increase its proposed purchase price. After the meeting, a representative from Qatalyst Partners contacted [David] Drummond [Google's chief counsel] to reject the US$30 per share offer, and suggested that Google increase its proposed price to US$43.50 per share.

On 9 August, Google upped its bid to US$37 per share. Jha said he'd take US$40.50 or higher. Later that day, Google went to US$40 per share.

By 10 August, Motorola Mobility was looking at other hypothetical strategic alternatives, but there really weren't any.

Motorola Mobility took the US$40 per share and 63 per cent premium. On 15 August, the Google-Motorola Mobility deal was announced.

Add it up, and Google went US$3 per share higher with little to no prodding. In other words, Google had to buy Motorola Mobility. First, Google needed the patents. Second, Motorola Mobility would have crumbled under the weight of lawsuits. If that latter scenario played out, Google would lose intellectual property and a key party. Google's negotiating panic may have been justified.

Via ZDNet US

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