GOOGLE'S $12.5 billion acquisition of Motorola Mobility seems pricey. The sum amounts to a 63% premium on the ailing device maker's share price before the deal. The purchase is widely regarded as being about Motorola's patents, which Google needs to defend itself from a spate of recent lawsuits.
How might Google, a company famously fond of numbers and maths, have arrived at the amount? The eagle-eyed industry analysts at Frost & Sullivan offer a plausible answer. In a commentary issued on August 16th they note:
"Motorola has a portfolio of 24,500 patents and patent applications that instantly bolsters Google’s strength in the IP war. Looking at some recent patent auctions and using some simple math can show why these patents were indeed the target of Google’s acquisition.
Using one of the industries recent patent auctions as a baseline, in December of 2010, Novell sold off its portfolio of 882 patents for $450 Million. A simple division calculation leads us to a value of $510,204.08 per patent. Why not round that figure off you ask? Well, let’s look at the patent value of the Motorola acquisition.
Forgetting that Motorola also makes mobile phones, let’s say the entire value of the acquisition was in their 24,500 patents and applications. At a $12.5 billion price tag, that equates to…drum roll please…$510,204.08 per patent. Can anyone guess what heuristic they used in the board room in valuing the deal?
In the Motorola acquisition, Google bought a patent portfolio and got a mobile phone business thrown in for free."
