Google’s Motorola purchase : Was it worth it?

Abstract

The belief behind an M&A operation is that one plus one makes three – in other words, two companies combined are expected to be more valuable than the addition of the two individual companies. The ultimate objective when buying a corporation is to generate shareholder wealth that exceeds the summation of the two firms by exploring potential synergies (the magical force that allows for improved cost efficiencies). This motivation is especially tempting to executives when the business environment is tough. Resilient businesses will proceed to purchase other firms in order to create a further competitive and efficient organization, translating in higher market share or profits. Considering the hypothetical benefits, target companies will frequently consent to be acquired when they recognize they cannot endure alone. In 2011, Google announced an USD 12.5 billion acquisition of MMI. The operation was undoubtedly Google’s most important purchase to date, and a controversial one. By buying a mobile device maker, Google was basically putting itself in open opposition with Android hardware collaborators such as Samsung, Acer, and HTC. But Google promised MMI would not get any favours and, according to the general and initial understanding of the market, the operation was more about attaining MMI’s patent portfolio than penetrating the mobile hardware industry. Google sought to make it far more complex for a corporation like Apple or Microsoft to allege Android infringed on its intellectual property. If they did, Google could bring MMI’s patent collection to bear. The main objective of this research paper is to investigate to what extent the amount paid by Google to acquire MMI was reasonable, as well as the implications of this operation in both businesses and in the industry.