So by now, we’ve all heard that Google is selling Motorola Mobility to Lenovo for $2.91Bn ($660MM cash, $750 Lenovo stock, $1.5Bn note). That’s a far cry from the $12.5Bn they paid for the unit back in 2012, but it’s not the ~$10Bn loss it would seem at first blush. A closer analysis of the history of the acquisition, and the players involved, paint a much different picture. In fact, it would suggest that this was Google’s intention all along.
- July 2011 — Google loses out to a consortium including Apple and Microsoft to patents as part of the Nortel Networks bankruptcy.
- August 2011 — 1 month later, Google announces it is acquiring Motorola Mobility Holdings for $12.5Bn in cash, which is essentially made up of the set-top box business, the handset business, and a huge patent portfolio. In the press release, Google makes very clear the patent portfolio is a big reason for the deal, protecting the Android operating system. Motorola Mobility has $2.9Bn in cash and $1Bn in available tax credits, bringing the purchase price down to $8.6Bn (according to Dealbook). Lazard, the investment bank, advises Google on the transaction.
- May 2012 — Clearing regulatory approvals, the Google/Motorola Mobility deal finally closes.
- August 2012 — 3 months after the deal closes, Bloomberg reports that Google hires an investment bank to sell Motorola Home, the set-top box business.
- December 2012 — 7 months after the deal closes, Google announces that they have sold Motorola Home to Arris for $2.35Bn ($2.05Bn in cash, $300MM in stock). With this cash, the original purchase price drops to $6.55Bn. Today, Arris stock is up 76% since this deal was announced, so if Google got a fixed number of shares, the $300MM in stock is now worth $527MM. Google now only “paid” $6.02Bn.
- April 2013 — Arris acquisition of Motorola Home closes.
- January 2014 — 9 months later, Google announces it is selling Motorola Mobility to Lenovo for $2.91Bn, meaning Google really paid $3.11Bn for all the patents it is keeping. And in 2012, Google valued those patents at $5.5Bn. Lazard again advises Google on the transaction.
So you could argue that Google is “up” $2.4Bn on paper since the original acquisition, ignoring the cost of capital and the operating losses they incurred by the unit during this period (though those losses would offset taxes at the Company overall). Bottom line, Google came out pretty well after all of this, especially in protecting the Android ecosystem. Happenstance?
If I had to make an educated guess as to how this all played out from the Board Rooms, this is how it would go…
Google wasn’t happy it lost on the Nortel patents and needed to play some defense. The Motorola Mobility opportunity was there, and even though Google did not want most of the businesses there (really just the patents), Motorola Mobility wasn’t going to just sell the patents. It could be they, and their banker Frank Quattrone from Qatalyst Partners, thought the sum of the pieces would be less than as a whole in this case (not to mention it would take a lot longer and be more painstaking to divide up the business). Selling the company entirely at once is a much “cleaner” transaction for everyone involved, particularly considering the risk for shareholders, employees, and management. The danger in that approach, of course, is likely not everyone wanted Motorola Mobility in its entirely. Arris probably told Motorola they just wanted the set-top business. Lenovo likely told them they just wanted the hand-sets. Google was willing to do the dirty work of paring down the business and selling the pieces it didn’t want. They felt it was worth it for the patents to protect Android. I believe they were right.
The moment the deal closes, Google and their bankers began the work of laying off workers to prepare the business for sale. After all, the units will look a lot more attractive if the operating costs were lower. Google hires Barclays immediately and not Lazard (who advised on the original deal), maybe because Barclays lost out originally and Google felt like they owed them (very common in the banking world). Lazard gets to sell Motorola Mobility since they worked on the deal originally.
Another reason I think this was all pre-planned is how quickly it happened. If Google really wanted to see if either of these business units made sense within Google, I think they would have given them some more time. If not the set-top box business, then at least the hand-set side. Deals of this size typically take months, if not years to develop (especially when it involves cross-border). The fact that Mobility was sold 20 months after a deal of this size closed indicates to me that they never wanted it, because they would have at least started negotiating so soon after closing. If it really was buyer’s remorse, they had 9 months between announcement and closing to walk away from the deal for $2.5Bn (termination fee), which is a lot less than the $12.5Bn they paid. If so, why didn’t they announce their intention at the beginning? Well, it would be hard to have employees stay motivated if they knew this wasn’t going to be home for awhile. They needed to retain talent or else the assets wouldn’t be as valuable.
This was the plan all along. Buy Motorola, spin off the assets, keep the patents, come out ahead. Smart move Google.