Google buys Motorola Mobility for $12.5 billion

By closing its biggest deal to date, Google has revved up its patent portfolio and declared a virtual war on Apple.

In a surprise move, Google has announced that it was buying the smartphone and tablet maker, Motorola Mobility, for $12.5 billion in what is going to be all cash deal. Google has agreed to pay $40, which represents a premium of whopping 63 percent on the closing price of Motorola Mobility shares on Friday. Motorola Mobility Holdings is the cell phone business that was split from Motorola.

The boards of both the companies have already approved the deal, which will give Google complete control of the manufacturer of smartphones and tablets like the Xoom, which run the Android operating system. The deal is expected to close by the end of this year or by early 2012. However, issues related to regulatory scrutiny could potentially delay the deal by few months.

This is Googles biggest deal in the history of company. In 2008, the company had purchased DoubleClick for $3.2 billion, which took a year to get approval. The most crucial thing that Google gets from the acquisition of Motorola Mobility is a treasure trove of more than 17,000 patents on phone technology. Recently Google had lost out in the race to buy the thousands of patents from Novel Inc. Novels patents went to a consortium that included Googles arch-rivals in telecom space - Microsoft, Apple and Research In Motion Ltd.

Motorola mobility has nearly three times more patents than Novel Inc. did. Many analysts are of the opinion that this is a defensive deal, as Google had to protect its Android platform from those plethora of lawsuits.

In his blog post, Larry Page, Googles chief executive said, this acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. With this acquisition Google, which makes the Android mobile operating system, turns into a full-fledged cell phone manufacturer. It is now in direct competition with Apple.

According to sources close to the deal, Google has agreed to pay a $2.5 billion reverse termination fee, if it walks away, and Motorola will pay a $375 million break-up fee if it takes another offer. There could be a few hiccups in the way of the deal being closed, due to regulatory reasons, especially since Google is already being investigated by the Federal Trade Commission for its alleged dominance in several areas of its business.

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