UPDATE 8-Google to buy Motorola Mobility in its biggest deal
* Google paying steep price, no way around it
* Biggest acquisition ever buys insurance
* RIM, Nokia, Motorola leap, seen as winners
* Losers may include rival cellphone makers (Adds anti-trust and other details, fund manager's comment)
By Sinead Carew and Alexei Oreskovic
NEW YORK/SAN FRANCISCO, Aug 15 (Reuters) - Google Inc's (GOOG.O) biggest deal ever, acquiring Motorola Mobility Holdings Inc (MMI.N) for $12.5 billion, is an attempt to buy insurance against increasingly aggressive legal attacks from rivals such as Apple Inc (AAPL.O).
The acquisition of one of the mobile telecommunications industry's most storied names is Google co-founder Larry Page's boldest move since taking over as CEO in April, launching the Internet giant into a lower-margin manufacturing business and pitting it against many of the 38 other handset companies that now use its Android software.
Motorola Inc was split this year into two: Motorola Mobility, which got the faster-growing cellphone and TV set-top box businesses; and Motorola Solutions (MSI.N), which sells gear like walkie-talkies to corporate and government clients.
Google is paying a massive 63 percent premium to gain access to one of the mobile phone industry's largest patent libraries. The company had been under pressure to build a patent portfolio after losing out to Apple, Microsoft Corp (MSFT.O) and others in a recent auction of bankrupt Nortel's assets.
Unlike the Nortel deal and others, the fact that Google avoided having to compete in an auction for Motorola by engaging in exclusive negotiations for the company underscores the pressure it was under to bolster its patent portfolio. Paying such a rich premium even though it was the only buyer dovetails with analysts' view that the increasingly litigious posture its competitors have taken over intellectual property left the Internet search giant with no choice but to pay up. [ID:nN1E77A1MX]
"No matter how you think about this, you have to look at it through the spectrum of the Android ecosystem under incredible attack from an IP (intellectual property) perspective. And this is Google going out and trying to fix that," said W.P. Stewart Advisors Chief Investment Officer Jim Tierney. "The biggest implication here is that Google wants Android to be one of the dominant phone operating systems for years to come."
Wall Street quickly anointed Microsoft a winner in this deal, with Windows benefiting should the move spur current Android partners to explore other options.
The deal also stoked speculation that struggling Nokia (NOK1V.HE) and Research in Motion RIM.TORIMM.O would become takeover targets themselves, sending Nokia's shares up 17.35 percent and RIM's up 10.3 percent.
Google made its first foray into hardware by co-developing the Nexus One phone with HTC in 2010 -- an effort that met mixed results. Monday's deal, however, could mark the start of a shift to an Apple-style model, integrating mobile hardware with underlying software.
"Google decided to cross the Rubicon on the device side," said Fred Huet, head of telecoms and media consultancy Greenwich Consulting. "There has been growing frustration (at Google) about the lack and speed of internet centric devices.
"With Nexus they tried to show the industry what they thought was the right evolution for handsets and it did not have an impact .... With the patents they make sure that Android stays strong." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Take a Look [ID:nN1E77E0O1]
Reuters Breakingviews [ID:nN1E77E0MJ]
Winners and losers [ID:nN1E77E14X]
Google's acquisition history: r.reuters.com/gaz23s
REUTERS INSIDER link.reuters.com/muv23s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
THE MORE THINGS CHANGE ...
The acquisition is likely to draw even closer regulatory scrutiny than usual, with the search leader already the subject of antitrust inquiries. Experts will want to review how it affects mobile industry competition. [ID:nN1E77E1OY]
But the deal -- which took Wall Street by surprise -- appears to mark a shift in strategy from Google's traditional Internet search and advertising empire and forays into video and social networking.
"The danger is that other handset makers feel disenfranchised," said Nomura Securities global technology specialist Richard Windsor. "Motorola is the weaker player. This could actually collapse the entire community."
Page, who also launched the ambitious Google+ social network since taking over as CEO, reassured investors on Monday this would not happen, saying Motorola will be run as a separate company licensing Android software in the same way as rivals like HTC Corp (2498.TW) and LG Electronics (066570.KS).
Phone makers including Samsung (005930.KS) officially said they welcomed a deal that will aid their own legal battles, but some analysts questioned the sincerity of those claims, noting that rival companies would now be unlikely to heavily promote Android since it would benefit a direct competitor.
Andy Lees, president of the Windows Phone Division at Microsoft, said in a statement that, "Investing in a broad and truly open mobile ecosystem is important for the industry and consumers alike, and Windows Phone is now the only platform that does so with equal opportunity for all partners."
Some analysts also doubt that Google will continue manufacturing handsets in the long term.
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