Now that the dust has settled down, here’s a rather surprising update on Google’s acquisition of Motorola. Apparently, a shareholder of Motorola has sued the company and its CEO, Sanjay Jha, for failing to get the best price from Google.
“The offered consideration does not compensate shareholders for the company’s intrinsic value and stand-alone alternatives going forward, nor does it compensate shareholders for the company’s value as a strategic asset for Google,” said the shareholder in a statement to Bloomberg. He also accused the individual board members of breaching their duty to investors and claimed that Motorola Mobility and Google aided and abetted that breach.
Dissecting his arguments one by one:
The Company’s Intrinsic Value
The company in question, Motorola, didn’t have much in terms of intrinsic value. It wasn’t even profitable; it posted losses in the first two quarters of 2011. Its market cap was under 8 billion before Google’s announcement. Things had been improving since Motorola shifted to Android, but the actual picture wasn’t as rosy as the shareholder probably thinks it was.
Stand-alone Alternatives Going Forward
I wouldn’t be very optimistic about Motorola’s stand-alone alternatives going forward. Motorola isn’t even the largest Android manufacturer; it comes third after Samsung and HTC. Its smartphones haven’t been doing very well and its tablet – the Motorola Xoom – failed to take off. As a stand-alone smartphone manufacturer, it was barely even making any money.
Value as a Strategic Asset to Google
The only reason why Google paid $12.5 billion for Motorola was its strategic value. Due to the recent patent wars, there has been a boom in the patent market. Companies like Nortel, which went bankrupt, have been able to liquidate their patent portfolios for billions of dollars, while the prices of companies like InterDigital have been bid up significantly.
While the press may speculate how Google may have bought Motorola for its digital TV business, or to start its own hardware arm, the real reason why Google bought Motorola so quickly, at the risk of alienating its other hardware partners and pissing off its shareholders, is its huge patent portfolio. Thanks to Motorola, Google now has over 20,000 patents in its portfolio which it can use to defend itself and its friends from lawsuits by Apple, Microsoft, Oracle and others.
Google paid a 63% premium over what the market valued Motorola at, which everyone thinks is pretty steep anyway. Google’s stock has taken a beating already and is down 10% since the announcement. The general consensus seems to be that Google may have overpaid, so I’m surprised that this gentleman thinks otherwise.
Let’s see how it goes. We will keep you updated.