A block on Google’s Motorola purchase by the US Justice Department or the EC will net Motorola $2.5 billion
The US Department of Justice (DoJ) has not said if it plans to intervene in Google’s bid to buy Motorola Mobility but the terms of the deal, as filed with Securities and Exchange Commission, hint that Google suspects this could be the case.
The terms contain, not so much a poison pill, as a bitter pill Google will have to swallow if the deal is blocked. There is a breakup fee of $2.5 billion (£1.5bn) which is an unusually high percentage (20 percent) of the $12.5 billion (£7.6bn) asking price. Breakup fees, sums paid when buyers fail to complete their deals, are normally a fraction of this.
If Motorola finds a higher-bidding suitor, it will only part with a $375 million (£227m) termination fee – which is the average price for such an agreement at three percent.
Motorola Still Wins If It Goes To Penalties
Whether such a high penalty clause would influence a DoJ investigator is questionable but it puts troubled Motorola in a win-win situation. It also helps Google to ensure that the patents it covets would be safe for a while.
It is these Motorola-held patents that gave Google the confidence to go ahead with the deal. Android, Google’s mobile device operating system, is under attack as software patent holders, primarily Microsoft and Apple, pour out injunctions to Google and its Android licensees.
“We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android,” wrote Google CEO Larry Page on the company’s blog. “The US Department of Justice had to intervene in the results of one recent patent auctions to ‘protect competition and innovation in the open source software community’ and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”
The Nortel patents, now owned by a consortium which includes Microsoft and Apple, are not as strong as Motorola’s, so the passing of Google’s bid would more than level the playing field.
As Google’s power increases, it’s activities have become the focus of many antitrust bodies around the world. The European Commission is engaged in an ongoing antitrust investigation. The company also faces scrutiny by the US Federal Trade Commission which formally notified Google in June of a similar investigation.
A Busy Year Of Judgements
This year has already seen a federal judge reject Google’s settlement to create a universal online book library, and the DoJ scrutinised the purchase of ITA, a flight data software company.
The DoJ also questioned Google’s advertising practices and is also currently considering the proposed acquisition of Admeld, a digital advertising software company – which is a much smaller deal that Motorola at $400 million (£242m).
The main plank in Google’s defence of the new deal is that Motorola has no involvement in the online search market and, therefore, is not a competitor to Google.
In an analyst conference call, David Drummond, Google’s chief legal officer, said he believed that the acquisition will ultimately be approved. “We believe very strongly this is a pro-competitive transaction,” he said.
If a review is called, Google expects it to be completed by early next year, according to a company statement.