Top Reasons Why Google Agreed to Buy Motorola Mobility

In a critical advancement for the versatile innovation industry, Google (NASDAQ:GOOG) has consented to purchase Motorola Mobility (NYSE:MMI) for $12.5 billion, or $40 an offer, in real money to safeguard its Android biological system.

The sticker price of $40 an offer speaks to a premium of 63 percent to the end cost of Motorola Mobility shares on Aug.12, 2011.

Motorola Mobility is a main designer of correspondences frameworks utilized in the remote and digital TV markets. The organization has embraced a total turnaround in the course of recent years with an emphasis on Android-based cell phones. Motorola speaks to around 11 percent of Android telephones.

In the mean time, Google emphasized that Android will stay open and that Motorola Mobility will be kept running as a different business. Google additionally expressed that its main five OEM accomplices were all steady of the arrangement.

The arrangement is required to close toward the finish of 2011/mid 2012, subject to standard shutting conditions, including the receipt of administrative endorsements in the US, the European Union.

Barring amortization of elusive resources, Google anticipates that the obtaining should be somewhat accretive to profit.

Google is paying 15x 2011E EBITDA and 9x 2012E EBITDA, balanced for the Motorola's money equalization of $3.3 billion and a net working shortfall (NOL) parity of $2.5 billion.

Here are the top reasons why Google is purchasing Motorola and that too at a heavy sticker price:

From the outset, the arrangement appears to be huge and costly, and Google likely could have selected to permit as opposed to purchase. Be that as it may, advertise experts see a responsibility for 17,000 or more licenses as a long haul hostile wager for the organization in the remote fragment.

"On an unadulterated arrangement numerous, we see the 8.6x various as somewhat higher than normal, particularly as its present comp gathering exchanges at 6-9x NOPAT (net working benefit after duties). Be that as it may, on a for each patent worth, Google paid $735K per patent, which is in accordance with the $750K paid per patent for the Nortel licenses - much lower on the off chance that we incorporate money and NOLs - at about $513K per patent," Susquehanna examiner Herman Leung wrote in a note to customers.

This cost doesn't appear to be nonsensical, particularly given about assessed $3 billion or more in yearly concealed patent charge expenses to the Android environment and the $4.5 billion spent on the Nortel licenses.

While Android is open and free from Google, there can be a shrouded patent charge. As indicated by media sources, HTC is as of now paying Microsoft a $5 per handset sovereignty, and Microsoft is evidently looking for a $15 per handset eminence from Samsung for utilization of Android.

"Accepting 200 million annualized Android gadgets at a patent sovereignty of $5-15 for every gadget, the patent expenses could have conceivably cost the Android environment $1-3+ billion every year," Raymond James expert Shyam Patil said in a note to customers.

"It is misty what drove Google to buy MMI versus exclusively MMI's licenses. We accept there could have been mind boggling cross-permitting understandings among MMI and other handset OEMs, making it legitimately muddled to just purchase the MMI licenses," Patil said.

* Motorola and Google have a solid working relationship as Motorola was one of the primary organizations to receive Android and is utilizing it as its sole working framework inside its cell phone portfolio.

* Google's Nexus S handsets have not been successes inside the business. By utilizing Motorola's handset skill in configuration, assembling, circulation and production network the board should profit any future variants of gadgets.

"A closer coordinated effort between the product and equipment groups could prompt expanded usefulness on future Motorola/Google gadgets," Rodman and Renshaw examiner Blaine Carroll wrote in a note to customers.

* The key method of reasoning of the arrangement is to guard the Android biological system from patent assaults from Microsoft, Apple and Oracle. The Motorola licenses will help Google in any potential prosecution. Motorola Mobility has more than 17,000 given licenses and 7,500 pending patent applications. In spite of the fact that a considerable lot of the licenses are more established, they are center key remote licenses.

* With Motorola's arrangement of licenses, Google ought to be in a superior situation to secure its handset accomplices that have put intensely in the Android stage throughout the years and furthermore redirect some focused weight from Microsoft (NASDAQ: MSFT) hoping to grow its Windows Phone 7 environment.

* An enormous piece of the thinking for this arrangement isn't just to save its Android biological system yet to go on the offense now with this arrangement of licenses that spreads innovations, for example, 2G, 3G, 4G, H.264, MPEG-4, 802.11, open versatile partnership (OMA), and close to handle correspondences (NFC), to give some examples of the 17K+ licenses.

"Its 39 OEMs ought to be increasingly happy with permitting Android and offer some extra security from different organizations looking for extra sovereignties. We accept a solid protection could be the best offense, particularly on the off chance that it is still right off the bat in the remote game," said Leung, who expects the arrangement could include about $1.68 in EPS for 2012.

* Finally, the procurement could lift Google's endeavors to push in to the advanced lounge room.

"We note that the expansion of MMI's Home (set-top box) business could catalyze Google's push into the computerized lounge room, where we see the organization in the long run confronting a sizable market opportunity in focused video publicizing (we accept that quite a bit of Google's gauge of a $200 billion presentation promoting TAM identifies with IP-addressable TV/video promoting)," ThinkEquity investigator Aaron Kessler said.