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Google to buy Motorola Mobility for $12.5 billion

Updated: October 19, 2011 3:27AM

Google’s announcement Monday that it is acquiring Motorola Mobility, the Libertyville-based cell phone and TV set-top-box company, for $12.5 billion — a 63-percent premium — comes just eight months after Mobility split from the old Motorola and three months after it took $100 million in a 10-year incentive deal to keep its headquarters here.

It also follows by three weeks Motorola Mobility’s warning that it would miss third-quarter profit expectations because of its second smartphone launch delay and price cuts on its tablet computers.

The Google buyout bid, surprising to many but hinted at in Motorola Mobility’s recent changes to its executives’ pay packages and CEO Sanjay Jha’s comments about the need for consolidation, comes after activist investor Carl Icahn pushed Mobility to make more money from its vast patent holdings. Icahn pointed out that Mobility could realize a bigger gain from its patents than Mobility had managed from becoming an independent company.

The rest of Motorola, called Motorola Solutions, is based in Schaumburg and makes bar-code scanners, public safety radios and radio-frequency identification readers.

Icahn, who owns 11.4 percent of Motorola Mobility’s shares, praised the Google buyout Monday, saying it will enhance the value of Mobility’s portfolio of 17,000 patents and 7,500 patent applications. Icahn’s ownership stake is valued at $1.34 billion under the Google buyout, which offers $40 a share in cash for Mobility’s stock, according to analyst estimates.

Jha, who had kept the area on pins and needles by considering Austin, Texas, and San Jose and San Diego, Calif., as possible Mobility headquarters sites, could realize $66 million or more on the deal if he departs, based on corporate compensation filings.

As for Mobility’s 3,500 employees in Libertyville, Gov. Pat Quinn, U.S. Rep. Robert Dold, (R-10th) and village Mayor Terry Weppler said their conversations with Google on Monday convinced them that Google would maintain Mobility’s presence here.

Experts say Google might cut some research-and-development work in Libertyville, since it maintains its own R&D in Silicon Valley, but that Google’s 400-employee Chicago office and its growing presence in the Midwest bode well for Mobility.

“I don’t think anyone would question the strategic fit here. It’s one of the few ways to build a company to compete head-on with Apple,” said Marty Singer, CEO of PCTel and a former vice president in Motorola’s cellular-infrastructure group. Singer noted that Dell Inc. and Research In Motion have smartphone-related offices in the suburbs, and that Google already hires engineers from the region’s universities.

Motorola Mobility continues to be eligible for the state’s tax and other incentives as long as it remains a separate company, which Google indicated it would, said Marcelyn Love, spokeswoman for the Illinois Department of Commerce and Economic Opportunity. The agreement calls for Mobility to retain at least 2,500 workers in Libertyville, though Quinn has said he received a verbal agreement that Mobility keep 3,000 employees at headquarters.

Quinn said that Illinois is behind only California and New York in Google’s economic activities, and he sees the Motorola Mobility buyout as “a great shot in the arm for our technology presence.”

Less certain is Google’s interest in Mobility’s set-top-box business. Morningstar analyst Rick Summer said Google could try to innovate and improve its less-than-stellar results with Google TV, but that it’s difficult to see Google making much headway in convincing cable-TV and satellite-TV operators to distribute Google content when they profit from their own.

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