On 15th August Google announced it would buy Motorola Mobility for $12.5bn.
Motorola Mobility was the mobile phone arm of Motorola and was spun off from the parent company at the beginning of 2011.
Motorola Mobility’s 2010 annual report showed revenues of $11.46bn, net earning loss of $79k, and total assets of $6.2bn. Before Google’s announcement the market capitalisation of Motorola Mobility was around $7.3bn
The general consensus is that the acquisition is driven by the mobile technology patents which Motorola Mobility holds.
Mobile technology patents are becoming more significant as the Smartphone vendors compete with each other in terms of innovation and new capabilities. Patents could ultimately determine which mobile phone technologies and suppliers will dominate the market. Google’s interest lies in ensuring the success of it’s Android mobile phone operating system.
The figures show Google values these patents at around $5bn. Interestingly, Motorola Mobility’s 2010 annual report mentions the fact that it holds 17,000 granted payments but they are not valued on the balance sheet. In fact ‘Other assets’ are only valued at $697m.
Other companies which are sitting on these type of patents are having their values reviewed. Nokia’s share price has risen after this announcement from $5.35 to over $6, increasing market valuation by almost $3bn.
Unfortunately for Google, their share price has fallen from $564 to $539 since the announcement was made. This reduces the market capitalisation of Google by around $8bn. Their shareholders don’t seem to appreciate the value of the Motorola Mobility purchase.