Yesterday we heard that Google were purchasing smartphone and tablet maker Motorola Mobility for $12.5 Billion. This acquisition is a significant move for Google, as it aims to strengthen its position in the mobile hardware market. However, the deal hasn’t gone through yet, and there are a number of things which could stop it from going ahead.
If the deal doesn’t go through, and Google decides not to purchase Motorola, they will have to pay Motorola a massive $2.5 billion break-up fee. This is probably the largest break-up fee in the history of such deals, and it indicates that Google must be very confident that the deal will go through to have agreed to such a high fee.
Strategic Importance of the Deal
The acquisition of Motorola Mobility is not just about expanding Google’s hardware capabilities. It also provides Google with access to Motorola’s extensive portfolio of patents. This is particularly important in the highly competitive smartphone market, where patent wars are common. By acquiring Motorola, Google can better protect its Android operating system from potential lawsuits and licensing fees. This strategic move could help Google maintain its dominance in the mobile OS market, where Android is already a leading player.
Moreover, owning a hardware manufacturer allows Google to have more control over the production and design of its devices. This could lead to better integration between hardware and software, similar to what Apple achieves with its iPhones and iPads. Such integration could result in more innovative and user-friendly products, giving Google a competitive edge.
Financial Implications and Market Reactions
The financial implications of this deal are enormous. A $12.5 billion acquisition is a significant investment, even for a company as large as Google. The $2.5 billion break-up fee further underscores the high stakes involved. If Motorola decides that they want to pull out of the deal, they will have to pay Google a break-up fee of $375 million. This is a lot lower than the Google fee and different from most deals where buyers and sellers agree to pay similar fees. The disparity in break-up fees suggests that Google is taking on more risk in this transaction, possibly to reassure Motorola’s shareholders and board of directors.
Market reactions to the announcement have been mixed. Some analysts believe that the acquisition will strengthen Google’s position in the mobile market, while others are concerned about the high cost and potential integration challenges. There are also regulatory hurdles to consider. The deal will need to be approved by various regulatory bodies around the world, and any delays or rejections could impact Google’s plans.
Additionally, this acquisition could have ripple effects across the industry. Competitors like Apple and Samsung will be closely watching how this deal unfolds. If successful, it could prompt other tech giants to consider similar acquisitions to bolster their own hardware and patent portfolios.
Source Bloomberg
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