Lenovo Group Ltd announced that it agreed to buy the Motorola Mobility phone unit of Google Inc. The deal is estimated to 2.91 billion dollars and is just another move in the line of the companys acquisition campaign of technology businesses in the U.S. The deal is expected to create the third-largest smartphone vendor in the world.
Google Inc. made an official statement, saying that the sale includes 1.41 billion dollars in cash and Lenovo stock paid at the close of the deal, with 1.5 billion dollars, which are going to be paid in a three-year promissory note. A majority of Motorola Mobilitys patent portfolio will be kept by Google, and Lenovo is going to receive a license to the intellectual property.
The Chairman and Chief Executive Officer of Lenovo Group Plc – Yang Yuanqing, said in an interview, cited by Bloomberg: “This fits perfectly with the strategy we have pursued for a couple of years. Before, we only had PCs ans a core business. Now, weve built two pillars: the first in enterprise, and the second is this mobile business.”
CEO Yang Yuanquing also explained in a conference call that none plans for layoffs are made by him. The Motorola brand will be used by Lenovo in the U.S. And Latin America. Mr. Yang said that the company is still considering the use of the name in China. During the call, he said: “We can not only turn around the Motorola business but further grow in this market. Motorola and Lenovo are competitive in different areas. When the deal closes, we will levarage all the capabilities of each side.”
Lary Page, who is the Chief Executive Officer of Google Inc., made a statement about selling the Motorola unit to Lenovo, which was cited by Bloomberg. Mr. Page said: “This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere.”
This move of the Lenovos CEO was penalized by the companys investors, who drove down the stock the most in 19 months because of concerns that Lenovo may have paid too much for a non-profitable business. Currently Motorola falls behind Apple Inc. and Samsung Electronics Co. in smartphone shipments and has posted information of falling sales.
One of the analysts working for Sanford C. Bernstein & Co. – Alberto Moel, said in an e-mail statement, cited by Bloomberg: “This time Lenovo may have jumped the shark.” Mr. Moel also called Motorola “that faded gem of the early wireless era”.
Some analysts criticized Lenovo and shared their beliefs that the Motorola deal would drain the companys cash reserves. Lenovo Groups shares dropped by 8.2%, which is the companys biggest decrease since June 2012. The stock has gained 6.7% this year, compared with a 5.5% decline in the benchmark Hang Seng index.
According to Bloomberg, the current share price of Lenovo Group Ltd is 8.21% down, and its one-year return rate is 27.98% up.
According to CNN Money, the current share price of Google Inc. is 1.43% down, and its one-year return rate is 1.23% down. The 42 analysts offering 12-month price forecasts for Google Inc. have a median target of 1,200.00, with a high estimate of 1,350.00 and a low estimate of 880.00. The median estimate represents a +8.41% increase from the last price of 1,106.92.
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