Google -- Motorola

In 2001, Google paid $12.5 billion for Motorola Mobility which represents a 65% premium on a struggling firm.

Breakdown of purchasing price:

• Patents: $5.5 billion
• Cash: $2.9 billion
• Goodwill / synergies: $2.6 billion
• Customers: $0.73 billion
• Others: $0.67 billion
• Total: $12.5 billion

Compared to book assets of Motorola of:

• Cash: $3.5 billion
• Other current assets: $3.2 billion
• PPE: $0.8 billion
• Goodwill: $1.4 billion
• Other assets: $0.7 billion
• Total: $9.6 billion

Q: Why this number differ significantly? Is this premium price reasonable?

Possible answers:

1. Google might pay Motorola a premium price because of valuable Motorola's intangible assets (such as patents, goodwill, trademarks, etc) which drives from Motorola's technology advance and complementary R&D capabilities. Although this premium is still questionable as this intangible assets are hardly to quantify as precise and accurate, but Google might expect the intrinsic value will result in future benefits and could be amortised annually as goodwill of combined firms.
2. The offers might be unreasonable, since we consider about the nature of intangible assets, but in this case, by considering future cash flows, Google really give a bear hug to Motorola business and technology advance. Lots number are different, but the intense of this offer is about the appreciation of the company's intangible future performance. For example, google might consider to integrate their online business with mobile technology, since Motorola holds several mobile techno patents and rights. Customers good relationships could be quantify in synergic benefits, although in book value accounting of Motorola not recorded this number.