Patent panic forced Google to pay high for Motorola
Price rose by $3bn in five days, and MMI insisted the search giant take the whole firm, not just the IPR
Published: 15 September, 2011
When Google's shock agreement to acquire Motorola Mobility for $12.5bn or $40 a share was announced, it was widely assumed to be a shotgun wedding, with the search giant forced to take on the whole firm in order to get its hands on a broad portfolio of patents which would help defend Android from attack. Now details of the negotiations have emerged in a proxy filing, indicating just how neatly Motorola chief Sanjay Jha was able to exploit Google's IPR panic.
It appears from the filings and insider reports that there was no bidding war, but Jha still held out for a price of $40 or above, forcing Google to increase its original offer by $3bn. Motorola, of course, had its own powerful reasons to seek acquisition - under intense competitive pressure from Samsung, HTC and others, and with its turnaround still uncertain, it might never get such a good price again; plus it was concerned about its own resources to fight off patent suits such as those from Microsoft and Apple. Neither of these problems would go away by selling only the patent portfolio, as activist investor Carl Icahn had suggested, so Jha stuck out for the bigger deal rather than a quick dose of cash.
According to the blow-by-blow account in the filing, the respective CEOs, Jha and Larry Page, first met only in mid-July to discuss a deal, which at that stage might have been purely a licensing agreement. The summit had been prompted by a request a week or so earlier from Google's Android chief, Andy Rubin, to meet Jha to discuss the recent Nortel IPR auction, in which Google lost out to a group including Apple and Microsoft. During these initial discussions, Jha's concern was that Motorola did not have the resources to fight "non-stop lawsuits", clearly suggesting a takeover by the richer company. While Google was, at this point, interested just in the patents. in a subsequent meeting, Jha told executives that "it could be problematic for Motorola Mobility to continue as a standalone entity if it sold a large portion of its patent portfolio".
The initial offer from Google was $30 but the board, and especially Icahn, believed the acquirer would go far higher and would take the entire company. It rejected the offer on August 5, proposing a price of $43.50. On August 9, Google increased its bid to $37; Jha insisted on $40.50; later that day Google went up to $40. The deal was announced on August 15, with no other serious options considered.