Friday, December 26, 2014

Google buys Horsham plant in $12.5B Motorola deal

For Google's war vs Apple iPhone

Google buys Horsham plant in $12.5B Motorola deal

Motorola Mobility Inc.'s profitable, Horsham, Pa.-based video-equipment business, its money-losing smartphone plants, and its portfolio of thousands of phone patents, will join Google Inc. through a planned $12.5 billion cash takeover. Google deal statement here. 

Search-engine giant Google is entering the hardware business with its biggest-ever acquisition, joining 20,000 workers at Motorola's plants to its current workforce of nearly 30,000. The Horsham business, Motorola Home, accounts for around 30% of the company's annual sales.

For its money, Google would get: one of the major manufacturers for Google's Android-brand smartphone systems; the leading manufacturer of cable-TV set-top boxes and a developer of mobile video-wireless and Internet Protocol Television systems; and more than 15,000 telecom device patents, which could aid Google in its battle against Apple iPhone and Apple's patent-wars ally Microsoft.

That price works out to $40 a share, a 63% premium to Motorola's Friday close. Google's shares slipped on the news, as acquirers' shares often do.

This "defensive" deal, which follows Google's failure to win Nortel Corp.'s smartphone patents in bidding against Microsoft and Apple last month, is "entirely driven by the patent portfolio," wrote Jordan Rohan, analyst at Stifel Nicolaus, in a report to clients. But Google has given no sign it plans to sell off the factory businesses, and is expected to keep them along with the patent portfolio, Rohan told me.

Google has spent billions branching out into new business lines because "they can’t really grow their core search business" beyond its current 70% market share without drawing Justice Department antitrust cops, Philadelphia native Evan Britton, ceo at Los Angeles-based ResourceWebs, told me.

Both boards have approved the proposal. Google justified the deal to investors here at 8:30 a.m.: "Android is growing like crazy," and Motorola (which had been losing mobile-phone market share) "made a great bet" by agreeing to help build its phones, Google boss Larry Page told investors. He called Google's decision to move into manufacturing a big step in the drive to migrate personal computing from PCs to handheld mobile wireless smartphone devices.

Google expects the deal to win US approval. Page said he expects to keep supplying equipment to phone and cable TV services (Verizon and Comcast, for example) and to cooperate with them on joint Internet protocols so gadgets can pass all kinds of data and images seamlessly, boosting profits for makers and networks alike.

And he promised to keep Android an open platform (in contrast to Apple iPhone's more closed, license-oriented applications environment.)

Page also said he'd leave Motorola Mobility boss Sanjay Jha and his team in charge. Jha said Motorola is a supplier to phone services, not just in the US, but in Europe, China, Japan and Brazil. Jha's top deputy, Dan Moloney, is a veteran of one of Motorola Mobility's predecessor companies, Horsham-based General Instruments. (Jha stands to make at least $68 million on the deal, and maybe lots more, says Michelle Leder of Morningstar's Footnoted, here.)

If Google keeps the set-top box business, the deal would make the Horsham plant the second and largest Google outpost in the Philadelphia area, following Google's acquisition of tiny Web ad sales firm Invite Media last year for more than $70 million. (Google has since moved Comcast-backed Invite's Philadelphia engineering center from funky digs over a closed Walnut St. bar to a fancier Market St. office.)

The Horsham works became part of Motorola in 2000 when it acquired the former General Instruments, a descendant of Jerrold Electronics, the pioneering cable TV equipment and finance business founded by Milton Jerrold Shapp after World War II. Shapp later parlayed his business fortune into two terms as Pa.'s governor. (When Motorola bought it the plant employed 1,000. No comment from the company how many now work there.)

Motorola Mobility's major investors who will benefit from the sale, include activist shareholder Carl Icahn, who pushed the former Motorola Inc. (now known as Motorola Solutions) to spin off Motorola Mobility as an independent company last year, as well as Vanguard Group and other big mutual fund investors, and pension funds.

Other phonemaker stocks rose on the news, including Nokia and Research in Motion (Blackberry). But King of Prussia-based InterDigital Inc. crashed more than 20% on fears a multi-billion-dollar payday for its own mobile phone patents portfolio is less possible, now that likely buyer Google has cut a different deal.

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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