Google Buys Motorola: Winners & Losers
Aug 15th 2011 2:15PM
Updated Aug 16th 2011 8:00AM
Google (GOOG) is buying Motorola Mobility (MMI) for $12.3 billion, its largest-ever acquisition. According to the AP, the deal is a "sign the online search leader is serious about expanding beyond its core Internet business." While the dust is settling, let's examine the winners and losers of the deal.
Winner No. 1: Motorola shareholders
To put it bluntly, they just lucked out -- the buyout represents about a 63% premium over Friday's closing stock price. Before Motorola split into two separate companies (Mobility and Motorola Solutions (MSI)), its stock price had crumbled over the past five years.
The activist investor Carl Icahn got involved in Motorola as its fortunes dwindled -- rarely a good sign for management. Icahn is a clear winner today as well; he's the company's largest shareholder, with an 11% stake. Looks like his wishes came true.
Winner No. 2: Consumers
For the growing population of smartphone users, this deal should be a big win. We'll see a more competitive top-to-bottom product from Google and Motorola, and frankly, better smartphones in stores.
Winner No. 3: Nokia (NOK)
All of a sudden, the struggling Nokia looks much more likely to be acquired by Microsoft (MSFT). In the short term, there's also a chance that Android partners that feel jilted might saber-rattle and test Windows 7 Mobile devices. (Before Microsoft fans rejoice, see below.)
Winner No. 4: Android itself
Google's Android operating system will have a better showcase forum and patents shielding its manufacturing partners from onerous licensing fees.
Loser No. 1: Major Android partners
Even though they are saying the right things this morning by praising the deal, major Android partners such as HTC and Samsung will now be the Jan Brady to Motorola's Marsha.
Loser No. 2: Carriers
Carriers lose out because Google's exerting more control over the soup-to-nuts experience of smartphone use, more like Apple (AAPL) does. This takes control out of the carriers' hands, and gives them one more high-powered device manufacturer to wrangle with.
Loser No. 3: Apple
Speaking of Apple ... move over, iFranchise. There's a slick new top-to-bottom smartphone headed your way.
Loser No. 4: Microsoft
Microsoft shares were up this morning, but Mr. Softy looks to be the biggest loser here. As mentioned above, in the short term, Microsoft may benefit from some of Android's big partners' increased willingness to explore Windows 7 smartphones. But in the long run, Microsoft loses leverage. Now that Google has acquired a treasure trove of intellectual property, Microsoft will lose its ability to muscle Android partners into paying Mr. Softy licensing fees, hurting profits and giving said partners less of a reason to jump ship from Android to Windows 7.
Google is taking a calculated risk that major Android partners won't jump ship. I suspect it's right. Where else can its partners go? Nokia is pulling support from its open Symbian system, and there's little developer or consumer interest around Windows 7 Mobile. If anything, I expect Google will pitch this deal to its Android partners as a win for them, because it should relieve them of Microsoft's hostage-style licensing fees.
Of course, this Google-Motorola deal will have one big hurdle to clear: The Federal Trade Commission will examine it closely, because they review Google every time Eric Schmidt pays the kid next door to cut his grass. I suspect the buyout will clear, though, since Google is keeping Android free and open to all comers, and the deal arguably helps competition among mobile operating systems.
Someday, we'll look back on this deal as an industry game-changer. Exactly how, though, remains to be seen. What do you think? Let us know in the comments below.
Motley Fool analyst Joe Magyer owns shares of Google. The Motley Fool owns shares of Microsoft, Apple, and Google.