The tech story of the day, and undoubtedly week, is Google’s purchase of Motorola Mobility for a whopping $12 billion. One interesting aspect of the deal is that it included a breakup fee of $2.5 billion. In other words, if the deal falls through for whatever reason, Google is still obligated to pay Motorola $2.5 billion – which according to a report from Bloomberg is more than six times the typical amount.
On a percentage basis, the fee is more than triple the $3 billion AT&T Inc. is offering as part of its $39 billion bid for Deutsche Telekom AG’s T-Mobile USA, the largest deal this year. Both AT&T and Google face increasing scrutiny as regulators examine whether their acquisitions are stifling competition in the telecommunications and Internet industries.
Now one can look at this from two non mutually exclusive angles. One, the high breakup fee perhaps indicates Google’s confidence that the deal will pass all muster, legal and otherwise, without much of a fuss. To that end, the $2.5 billion break fee is no sweat for the search giant. From another angle, the high break free might be a reflection of Google’s desperation to acquire Motorola’s patent portfolio even if it means agreeing to an unusually high break free amount. Remember that Google’s proposed deal to acquire Groupon allegedly fell apart due to Google’s reluctance to agree to Groupon’s breakup fee stipulations.
On the flip side, should Motorola back out of the deal, they’ll be on the hook for a much more reasonable $375 million.