That’s quite a come down for Google, which paid $12.5B for Motorola Mobility in 2011 – the biggest deal it had ever made at the time — but couldn’t turn it into a money maker. The unit recorded an operating loss of $248M in last year’s Q3, a 29.2% increase from the period in 2012. Lenovo’s already a mobile phone player in several emerging markets — and now can become a competitor in the U.S., Latin America, and Western Europe. Today’s deal gives the Hong Kong-based computer company a portfolio of products that include the Moto X and Moto G. It scores the Motorola Mobility brand and trademarks as well as “over 2,000 patent assets,” the companies say. Google gets to keep the “vast majority of the Motorola Mobility patent portfolio,” including patent applications and invention disclosures. Google CEO Larry Page says that Lenovo “has the expertise and track record” to become a power among providers of Android-powered phones. Meanwhile Google will “devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere.” When he bought Motorola Mobility, Page vowed to “create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers.” But the mobile phones remained an also-ran in the U.S. Motorola had 6.7% of the market in November vs 41.2% for Apple’s iPhone and 26.0% for …
So much for the speculation that Google might buy or pay off TiVo to resolve its DVR patent infringement case against Motorola Mobility’s home division — and facilitate a sale of the powerful set-top box operation. The search giant said this evening that it sold the business for $2.05B in cash and $300M in stock to Arris Group, a communications technology company. The news sent Arris shares up 16.9% in after hours trading. The company’s already on a roll, with its stock up 42% over the last 12 months. The deal “adds expertise in video and a larger presence in the home to our core strengths in voice and data, ensuring we are even better positioned to capitalize on and manage the evolution toward multi-screen home entertainment,” Arris CEO Bob Stanzione says. The companies report that Motorola’s home business generated $3.4B in revenues for the four quarters that ended in September, and that the deal should result in as much as $125M a year in cost savings. Google indemnified Arris against material risks from TiVo’s suit. That suggests “TiVo’s leverage tied to the sale was less than we thought,” says Lazard Capital Markets’ Barton Crockett. Google picked up the set-top box business last year when it paid $12.5B for Motorola Mobility, a major licensee of Android handset phones.
A lot of investors seem to think the DVR patent infringement suit with Google‘s Motorola Mobility could result in either a big settlement — or perhaps a sale. TiVo‘s stock is flirting with a 52-week high: it’s up about 1.7% this morning, and more than 19% since the middle of last week when it reported generally encouraging Q3 earnings. The reason: Company watchers believe that Google wants the TiVo suit out of the way so it can sell Motorola Mobility’s pay TV set-top box business. Bids for the operation are due today, although the deadline might be extended, The Wall Street Journal reports. Outsiders say the unit should sell for about $2B. Meanwhile, TiVo’s hand in the case appeared to have been strengthened yesterday by what Lazard Capital Markets’ Barton Crockett says was “a positive claim construction ruling” involving one of the company’s key patents. TiVo has a perfect record so far in resolving these cases, including against companies that use Motorola Mobility’s DVRs. It believes that it could collect $1B in damages in its suit — equal to all of the settlements from its patent infringement case settlements with DVR providers including Dish Network, Verizon, and AT&T. The case is scheduled to go to trial in May.
TiVo‘s stock led the media pack yesterday, up nearly 4% after it announced that it will collect $250M from Verizon to settle their patent infringement dispute. And today it’s still on top, up about 3% to $10.25 in early trading. Lazard Capital Markets’ Barton Crockett helped this morning by upgrading his recommendation on TiVo stock to “buy” from “neutral” with a target price of $14. That’s a bit of a surprise: Yesterday, Crockett said that the Verizon settlement was “close to our expectations” and “not a sea-change.” But this morning he says that “upon further analysis” he concluded that the terms with Verizon make him “more optimistic” that TiVo will negotiate another settlement in its patent infringement case against Google’s Motorola Mobility, scheduled to go to trial this spring. “Google is seen by many as potentially a seller of Motorola Mobility,” Crockett says. “Settling the TiVo suit could make a Motorola sale much easier.” Brean Murray Carrett & Co analyst Todd Mitchell also says that the Verizon deal bodes well for the DVR pioneer. There’s a “high likelihood” the Motorola suit will be settled before trial because the business “cannot be priced with the overhang,” he says this morning. Cisco also might be motivated to resolve its differences with TiVo: If it doesn’t, then it would be “at a disadvantage pitching its home gateway business” from its recent acquisition of software company …
Two-thirds of the 4,000 positions being cut from the unit — which primarily makes Android mobile phones — will be outside the U.S., Google says this morning in an SEC filing. It also plans to close or consolidate a third of its 90 facilities as it shifts its emphasis from feature phones to what it calls “more innovative and profitable devices.” Google says this will result in a severance-related charge of as much as $275M — as well as other expenses — most of which it expects to recognize in Q3. The company says that “these additional charges could be significant,” but it can’t say how high they might go. “These changes are designed to return Motorola’s mobile devices unit to profitability, after it lost money in fourteen of the last sixteen quarters,” Google says. Still, it warns that “investors should expect to see significant revenue variability for Motorola for several quarters. While lower expenses are likely to lag the immediate negative impact to revenue, Google sees these actions as a key step for Motorola to achieve sustainable profitability.” Last year Google agreed to pay $12.5B for Motorola Mobility, which is also a leading manufacturer of cable set top boxes. Google shares are up slightly in pre-market trading.
Google To Become Mobile Handset Power With $12.5B Deal For Motorola Mobility
We can only imagine the look on Time Warner Cable CEO Glenn Britt’s face when he learned that Google agreed to pay $12.5B for Motorola Mobility. But I doubt it was a smile. The Google news didn’t simply bury TWC’s announcement today that it will pay $3B to buy Insight Communications, which includes 750,000 cable customers many of whom live in rural areas in Kentucky, Indiana, and Ohio. Executives at the highest levels of the business say that Britt reaffirmed his commitment to cable just as Google raised new questions about the prospects for pay TV. The Web giant is about to become a major force in the industry: Motorola Mobility and Cisco are pretty much a duopoly as suppliers of cable set top boxes and the software that operators use to serve them. And Google very much wants to mix Web video with traditional cable channels — a thought that petrifies many operators and programmers. The company is trying to blend the distribution channels in its Google TV service, which has mostly left consumers cold. But that could change. Credit Suisse analyst Spencer Wang says that Google has “a significant opportunity” to capitalize “not only (on) its Google TV platform, but also its ownership of YouTube.” No wonder Matthew Polka of the American Cable Association, a trade group that mostly serves small pay TV companies, says his members “will want assurances from Google that it is both committed to the cable business model and won’t use its market power to run roughshod over smaller cable operators.”
This is the biggest deal Google has ever made. We’ll see whether it gives the Web giant the resources it needs to make its Android-powered handsets even more potent competitors to Apple’s iPhone. But Motorola Mobility investors should be happy with the $40 a share offer — a 63% premium from Friday’s closing price: Billionaire Carl Icahn, who owns 11.4% of the company and had urged it to consider cash-generating options such as selling its patent portfolio, says the deal is “a great outcome for all shareholders of Motorola Mobility, especially in light of today’s markets.”
MOUNTAIN VIEW, Calif. & LIBERTYVILLE, Ill.– 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.