Google Buys Motorola Mobility

Yesterday (Aug. 15th), Google (NasdaqGS: GOOG) announced that it was acquiring Droid smartphone manufacturer Motorola Motility (NYSE: MMI) for $12.5 billion in cash, or $40 per share.

The price was a huge 63% premium to Motorola’s closing price the day before the announcement. Why would Google pay so much? According to Google co-founder and CEO Larry Page, the acquisition of Motorola has to do with intellectual property and the avoidance of costly and distracting patent infringement lawsuits:

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 acquisition, Google's largest ever (the previous largest acquisition was purchase of DoubleClick for $3.1 billion in 2007), shocked the Wall Street, making Google's stock dip 2.6 percent to $549.23 soon after the announcement.

Investors were stunned because Motorola is not only the smallest of the major Android smartphone makers but it is also the only major Android handset maker whose share of the smartphone market declined in the second quarter. Motorola split into Motorola Mobility and Motorola Solutions Inc. in the first quarter of 2011.