Apple's Case Study: Google Motorola Deal

Google Motorola Deal

Industry Analysis

Worldwide Smartphone sales to end users soared to 472 million units and accounted for 31 percent of all mobile devices sales, up 58 percent from 2010.

Smartphone volumes during the quarter rose due to record sales of Apple iPhones. As a result, Apple became the third-largest mobile phone vendor in the world overtaking LG. Apple also became the world 's top Smartphone vendor, with a market share of 23.8 percent in the fourth quarter of 2011, and the top Smartphone vendor for 2011 as a whole, with a 19 percent market share. Western Europe and North America led most of the Smartphone growth for Apple during the fourth quarter of 2011. In Western Europe the spike in iPhone sales in the fourth quarter saved

The valuation of each firm was derived from forecast of cash flows based on projection of operations over the next few years. The parameters of growth rate of different lines of cash flows were different for both the companies depending upon the company’s business strength. Regarding the rate for discounting of cash flows, the CAPM model is used to estimate the cost of equity and WACC. The long term debt ratio is assumed to decrease with decrease in cost of capital as the project life goes and improvement in the credit rating of the firm. The premium for Motorola share comes around to be 65%. The excel sheet has been provided which provides in depth analysis of the two

This fee was about 20 percent of the $12.5 billion deal value and was significantly higher than the $375 million Motorola Mobility must pay Google if it accepts another bid.

Motorola filed a copy of the acquisition agreement between it and Google on that spells out the exact terms when this fee was required to be paid. There were two circumstances:

1. The agreement is terminated because a government authority (e.g., a federal court or European Union antitrust authorities) issues a final, non-appealable order blocking the transaction on antitrust grounds.

2. If by Feb. 15, 2013, the transaction has not closed because it is being blocked by the authorities or has not cleared antitrust review, either party can terminate the agreement and transaction. The fee is then payable if two more conditions are met:

a) The transaction could otherwise close but for the failure to obtain antitrust clearance or the government blocking the deal.

b) Google willfully failed to use its reasonable best efforts to complete the deal or otherwise willfully breached the requirements in the agreement to obtain antitrust