Google Spends Big For Motorola Mobility, But Can It Pass Anti-Trust Muster?

Earlier today, Google trumpeted its proposed plan to buy Motorola Mobility Holdings Inc. for $40/share in cash ($12.5 billion), which translates into a premium of 63 percent based on closing price of Motorola Mobility shares on Friday, Aug. 12. But the road to final approval, estimated by Google to be year-end 2011 or the first part of 2012, could be rocky.

Right now, money is the least of Google’s problems when it comes to this buyout. Rather, it needs to brace itself for the global scrutiny this merger will encounter when it comes to Motorola Mobility’s coveted patents (some 17,000 of them and another 7,500 in the works). And it’s already been disappointed once this year when it comes to patent acquisition, having been snaked by a group made up Apple, Microsoft, Research in Motion, Sony, Ericsson and EMC for Nortel’s intellectual properties covering wireless and networking plus semiconductors. The bankrupt Canadian concern pocketed $4.5 billion in cash for those patents, and Google’s offer was left behind.

That being said, this deal (which came out of the blue, much like the AT&T/T-Mobile pending merger) needs the regulatory approval not just from U.S. agencies but from European overseers as well.

In an analyst call this morning, Google officials were careful in how they answered question regarding not only Motorola Mobility’s patents but current litigation involving that company against Microsoft (which has been ongoing for almost a year). And in a personal blog posting today, Google CEO Larry Page noted, “We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to ‘protect competition and innovation in the open source software community’ and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”??He continued, “The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences. I am confident that these great experiences will create huge value for shareholders.”

Jeffrey Silva, senior policy director/Telecommunications, Media and Technology at Medley Global Advisors LLC in Washington, D.C., told CT Reports, “At a minimum, this deal will intensify policy makers’ scrutiny of Google. It’s a global deal with competitive implications.”

In a change from past merger vettings, Silva says antitrust officials are beginning to look at vertical buyouts (which includes this one) a little closer, “especially where patents are involved. It wouldn’t surprise me if there were some competitive-safeguard strings attached (to any approval).”  ?

Martin Cooper, credited with leading the team that developed the first handheld cellphone while working at Motorola in the 1970s, is chairman at Dyna LLC, a telecom company that works to incubate companies with an emphasis on wireless communications technology and market-driven solutions. He’s also chairman at ArrayComm LLC. As a former Motorolan, he has some questions about the Google/Motorola Mobility venture. He also continues to mourn the death of the original Motorola culture that emphasized technological excellence.

“I don’t know if the focus on technology will continue (with this merger),” he tells CT Reports following his just-finished run down a zip line in Colorado this afternoon. “I’m concerned about what will happen with Google’s Android competitors like Samsung and HTC. Will they continue to use Android now? Google will have to open it up." On the flip side, he notes, "This may be a good thing for Microsoft.”

What The Main Players Say

There is a method to Google’s madness. First, owning part of the supply chain along with a lot of lucrative patents is good for business. Second, Motorola Mobility’s handsets and set-top boxes will help ensure Google content reaches subscribers everywhere at any time on any device. And this might be just the boost Google TV needs.

“In 2008, Motorola bet big on Android as the sole operating system across all of its smartphone devices. It was a smart bet and we’re thrilled at the success they’ve achieved so far. We believe that their mobile business is on an upward trajectory and poised for explosive growth,” Page said in his blog. “Motorola is also a market leader in the home devices and video solutions business. With the transition to Internet Protocol, we are excited to work together with Motorola and the industry to support our partners and cooperate with them to accelerate innovation in this space.”

Adds Sanjay Jha, CEO at Motorola Mobility, in a statement earlier today, “This transaction offers significant value for Motorola Mobility’s stockholders and provides compelling new opportunities for our employees, customers, and partners around the world. We have shared a productive partnership with Google to advance the Android platform, and now through this combination we will be able to do even more to innovate and deliver outstanding mobility solutions across our mobile devices and home businesses.”

Associations Willing, With Assurances

So far, there doesn’t appear to be much industry blowback regarding the proposed merger.

Richard Frey, vice president and general manager/Hardware for the National Cable Television Cooperative (NCTC), told CT Reports, "Motorola Mobility has been a long-standing partner with NCTC, and we look forward to seeing what new innovations Google can bring to the cable product category that are cost-efficient for our independent members.”
 
He adds, “If Google can expand existing set-top choices and bring a smoother integration to how smart phones interact with set-tops and in-home viewing using cloud-based technology, that is a win for the consumer and NCTC members.”

In a statement, American Cable Association President and CEO Matthew M. Polka said, "We’re going to review the deal to understand the impact on the cable set-top box market, which has been a frustrating one for small cable operators long beholden to the Motorola-Cisco duopoly. For many cable operators, the question is whether Google’s takeover of Motorola as one of only two major manufacturers will make things better or worse. ACA members will want assurances from Google that it is both committed to the cable business model and won’t use its market power to run roughshod over smaller cable operators.? ?

He continued, “Moreover, the future holds great promise for rural consumers as small cable operators explore IP- and cloud-based solutions in offering video to subscribers on TVs, PCs and mobile devices. Prior to today’s Motorola Mobility announcement, Google has had its own interests in all of these areas, and it will be important that Google’s other business interests do not unduly harm the growth of these new competitive market opportunities.”

The National Cable & Telecommunications Association declined to comment at this time.

– Debra Baker