Google is buying Motorola Mobility

Google Inc. (NASDAQ: GOOG) and Motorola Mobility Holdings, Inc. (NYSE: MMI) today announced that they have entered into a definitive agreement under which Google will acquire Motorola Mobility for $40.00 per share in cash, or a total of about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011. The transaction was unanimously approved by the boards of directors of both companies.

The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.

My Immediate views:

1. Google is not buying a hardware company, Google is buying patents. Patents don't come cheap. This is the reason why Nortel patents went for $4 Billion+ to Microsoft/Apple'Oracle etc. Motorola was smart to sell hardware business along with the patents.

2. Google becomes a competitior to other Android focussed OEMs like HTC and Samsung. This will cause a lot of heartburn to these OEMs irrespective of the quotes Larry Page has gathered. This along with the pending issue of patent use payment to Microsoft will force the OEMs to look at Windows Phone as an focussed alternative.

3. Google gets another way to reach consumers. Motorola mobility has consumer home portfolio which includes video, voice and data solutions. The FIOS set-top box in my home is a Motorola device.

4. We will see more such acquisitions in the near future from companies who have large cash at hand (Google/Microsoft/Apple). Nobody wants to sit on cash with zero return. Acquisitions is one good way to spend this money.One caveat though, investors don't like these companies spend cash.