Google launches high-stakes bid for Motorola Mobility

Google is buying cellphone maker Motorola Mobility for $12.5 billion US in a blockbuster deal that will seethe search engine giant acquire Motorola's vast array ofpatentsand turn Googleinto a mobile-phonemaker.

The deal isby far Google's biggest acquisition to date. It willpay $40 per share in cash, a huge 63 per cent premium to Motorola's closing price on Friday. The $12.5-billion price will consume almost a third of Google's cash hoard.

Google makes the popularAndroid operating system that powers about 150 million cellphones around the world.

Motorola is one of dozens of manufacturers that makes cellphones that run on the Android platform, in direct competition with Research In Motion's BlackBerry, Apple's iPhone and Microsoft's Windows mobile operating system for smartphones.

"Motorola Mobility's total commitment to Android has created a natural fit for our two companies," Google CEO Larry Page said in a statement. "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers."

There's no question thata driving force behind Google's purchaseis Motorola's valuable cache of17,000 patents on phone technology. It hasmore than 7,000 patent applications pending.

Google recently lost outin a bidding war with a consortium led by rivals Apple, RIM and Microsoftfor 6,000patents held by bankrupt Nortel Networks.

Google has charged that Apple, Microsoft, Oracle and others have gone on a patent-buying spree to try to force Google to pay them a rich licensing fee for every Android-equipped device sold. Google is facing a raft of lawsuitsthat allege that Google's Android system stole patent-protected technology from rival tech companies.

"Our acquisition of Motorola will increase competition by strengthening Googles patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies," Page said in a Google blog post.

Nokia, RIM shares rise

Shares of rivals Research In Motion and Nokia jumped by about eight and 16 per cent, respectively, as traders speculated that takeover offersfor those two companies, which both haverich patent portfolios, could also attract premiumbids.

National Bank Financial analyst Kris Thompson estimated that RIM's patents could now be worth$10 billion and said speculation on their value couldlift RIM's share price in the short term.

"We believe Googles acquisition of [Motorola Mobility] will set a floor-value for RIMs shares around current levels," Thompson wrote in a research note.

The deal also marks a major turning point in Google's strategic plan. Until now, it has largely confined itself to software development. Now, italso becomes amajor manufacturer of telecom hardware.

What the deal won't change, according to Google, is the company's commitment to Android as an open platform.

"Motorola will remain a licensee of Android and Android will remain open," said Page. "We will run Motorola as a separate business."

Motorola Mobility was split off from the rest of Motorola in January. Motorola made the first commercial portable cellphonein 1983.

Motorola Mobility's shares soared $13.63 to $38.10 US Monday on news of the takeover offer, whichrequires regulatory approval.

The biggest shareholder beneficiary of this deal is billionaire activist investor Carl Icahn, who owns more than 11 per cent of Motorola Mobility. Hehad long urged Motorola to sell off its valuable patents.

Some analysts said Google's expansion into the cellphone manufacturing worldcould complicaterelations with some Android partners who will suspect thatMotorola will get a better deal from its new parent.

"Google will move from the position of partner to that of competitor to Android handset manufacturers, potentially placing significant strain on the Android ecosystem," Ovum analyst Nick Dillon wrote in a Monday note. He thinks some cellphone and tablet makers will switch to other software platforms if they detect the slightest evidence of favouritism.

But Google CEO Page pledged to treat all Android partners fairly. "Many hardware partners have contributed to Androids success and we look forward to continuing to work with all of them to deliver outstanding user experiences," he wrote.