Parandroid dealmaking

Google salvages insurance from its biggest deal

Google has managed to salvage some insurance value from its $12.5 billion mobile device misadventure. Offloading Motorola Mobility to Lenovo for just $2.9 billion two years after acquiring the company on its face looks awful. But there's more to it than that and Google is keeping loads of patents. Its biggest deal ever was costly, but nevertheless bought a kind of protection for the Android world.

While Google boss Larry Page initially touted a "natural fit" between the two companies, it seemed unlikely from the start. Motorola at least brought $3 billion of cash and $1 billion of tax savings from net operating losses, reducing the headline price to $8.5 billion. Then, the internet search giant sold Motorola's cable set-top box unit for $2.4 billion.

Throw in the $2.9 billion Lenovo is paying for the core handset business, and that leaves about $3.2 billion of value that needs accounting for - ignoring at least $1 billion of Motorola operating losses recorded by Google after the acquisition. Google acquired some 17,000 patents in the deal. They'd have to be worth about $190,000 apiece for Google to make up the $3.2 billion shortfall.

A couple of years ago, such intellectual property was fetching much higher prices, which may be why Google valued Motorola's patents and technology at over $5 billion shortly after it bought the company. It isn't obvious, though, that the value will hold up. A series of recent court setbacks means the patents for now aren't stacking up as effective a defense as once probably thought.

Even so, Google worried with good reason that absent such safeguards its competitors would have strong-armed their way to easy royalty claims. Owning Motorola also has helped Google turn Android into a thriving operating system that rivals Apple's. What's more, Motorola peers Nokia and BlackBerry have arguably suffered more without Google's support.

Selling to Lenovo, assuming it can clear regulatory hurdles, may also bring additional benefits. The deal should improve the Chinese company's chances of competing against Samsung using Android, which would help prevent any one supplier from getting too much of an edge when negotiating with Google. All told, buying Motorola wasn't cheap but as mega-deals go, it also wasn't a disaster.