Monday, August 15, 2011

Motorola Mobility's Mobility - is Google the Solution?

Early this morning, I read a random comment from Loic LeMeur that talked about how some phone vendors were obviously going to switch from Android to Windows Mobile. It was only a snippet, and I didn't really think about it further.

That is, until I received an email from my mom later this morning. Actually I didn't receive the email; I received a text message with the first couple of lines of the email. One of those lines was "Hope you still hold some Motorola stock!"

[DISCLOSURE: Read the next several paragraphs.]

Back when I worked for Motorola, there was only one Motorola. However, that one Motorola sold different products, and even then there were two major product lines plus some other lines. The one product line that was obvious to everyone was the phone part of the business. The other part, the one that I worked for, was the police radio part of the business. As time went on, this part expanded, and Motorola began to acquire stuff that was complementary to police radios. For example, computer aided dispatch systems were obviously complementary to police radios. And my line of business, automated fingerprint identification systems, was complementary to police radios because ... well, because ... now you see why Motorola sold our division.

After my departure, Motorola finally implemented its long-planned split, with the radio business going to a company called Motorola Solutions, and the phone business going to a company called Motorola Mobility. My former co-workers scattered between the two, with one of my co-workers working in a group that managed Android applications for Motorola Mobility's emerging line of Android phones.

Fast forward to this morning, when I belatedly learned the news that my mom was talking about, and that Loic LeMeur was obviously referencing:

MOUNTAIN VIEW, CA and LIBERTYVILLE, IL – AUGUST 15, 2011 – 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.

Larry Page, CEO of Google, said, “Motorola Mobility’s total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers. I look forward to welcoming Motorolans to our family of Googlers.”

Sanjay Jha, CEO of Motorola Mobility, said, “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.”

Andy Rubin, Senior Vice President of Mobile at Google, said, “We expect that this combination will enable us to break new ground for the Android ecosystem. However, our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices.”

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals in the US, the European Union and other jurisdictions, and the approval of Motorola Mobility’s stockholders. The transaction is expected to close by the end of 2011 or early 2012.

So what happens now? Will Google's hit-or-miss success in integrating its acquisitions result in a win here, or will Motorola Mobility drift?

And why didn't this happen several years ago? One reason was the price. As you can see above, Google paid about $12.5 billion for Motorola Mobility. That wasn't what was envisioned back in 2007-2008, when Carl Icahn was pressing Motorola to sell the cell phone division off. At the time:

Investors including Carl Icahn, dismayed by the company's worsening performance, advocated for a spin-off of the phone unit for nearly a year (, 5/7/07). "I am pleased to see that Motorola is finally exploring that proposal," Icahn said in a statement. Icahn has also said he believes the cell-phone division could sell for about $20 billion, roughly the amount of the unit's annual revenue.

Of course, if Icahn had really believed that the cell phone group was worth $20 billion, he could have bought it himself. He didn't. Google did. And Icahn is pleased:

Press Release Source: Carl C. Icahn On Monday August 15, 2011, 8:43 am EDT
NEW YORK, Aug. 15, 2011 /PRNewswire/ -- Motorola Mobility Holdings, Inc. today announced that Google Inc. and Motorola Mobility have entered into an agreement under which Google will acquire Motorola Mobility for $40.00 per share in cash, a premium of 63% to the closing price of Motorola Mobility shares on August 12, 2011. Carl. C. Icahn commented:

This is a great outcome for ALL shareholders of Motorola Mobility, especially in light of today's markets. In the past three years we have fought long and hard to separate Motorola Mobility from Motorola Solutions, as well as bring Sanjay Jha., as co-CEO.

Additionally, we have been strong proponents of the company exploring multiple ways to enhance the value of its patent portfolio. Motorola is activism at its best and we applaud management and the Board for acting so responsibly.

Now we just need to see where Sanjay Jha ends up. Presumably he'll settle in at Google's patents division, since he's expressed an interest in this topic:

During its Q2 earnings conference call Motorola hinted that it is ready to join Android patent racket, and start demanding licensing fees for its IP from other Android manufacturers.

This week Motorola’s CEO Sanjay Jha reiterated this message, and made it even more clear – they do indeed have plans to start collecting IP royalties from other Android makers.

However, if Loic LeMeur is right and other companies switch away from Android to more "open" phone environments (Microsoft?) rather than the "closed" environment in which Google makes its own phones, there might not be many royalties to connect.
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