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Multinational
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Acquisition

Presented by

Professor:
Course: ACC 401 Advanced Accounting
Date:

This is a discussion of the recent acquisition by Google, Inc., a publically traded U.S. multinational corporation, of Motorola Mobility, another multinational corporation. We will briefly describe in general terms, the acquisition of Motorola by Google, including analyzing the accounting requirements for such acquisition, and the various accounting challenges in preparing the financial statements for the consolidation of the subsidiaries on the date of acquisition.
Furthermore, the paper will evaluate the amount of goodwill or other intangible assets derived from the transaction, including providing an in-depth explanation as to whether financial value was created by such acquisition. Additionally, other special issues will be analyzed, including the implications of changes in ownership, insolvency, liquidation, the reorganization resulting from such acquisition, and identification of the key accounting areas of difference for the acquisition reporting material to the profitability of the combined entity. Overall, this paper will conclude that Google’s acquisition of Motorola was significantly positive in terms of value within the wireless carrier market, and in terms of global goodwill. As reported by the Wall Street Journal, on August 16, 2011, the multinational company Google had completed a $12.5 Billion deal to acquire Motorola Mobility’s cellphone business (Efrati, 2011). In terms of strictly numbers, Google’s acquisition of Motorola, is not only the company’s largest in history, but also “thrusts the Internet company into the cutthroat business of making smartphones, tablet computers and cable set-top boxes and nearly double Google’s work force and testing the company’s young alliance with other cellphone makers” (Efrati, 2011). For the year 2011, such acquisition by Google was considered historical, including with respect to the volume, size, and scope of such acquisition, and considered in fact, a monumental announcement with the mobile phone market (Efrati, 2011).
At the outset of the acquisition news, Google was very informative from an accounting perspective, in regards to disclosing that Motorola would continue to operate as a separate and independent business entity (Chloe, 2011). As Google’s CEO explained in great detail, “We will run Motorola as a separate business”, clearly establishing that from a financial reporting perspective, that the acquisition would likely not constitute singular accounting balance sheets or statements, rather that each corporate entity would continue to maintain their own individual accounting (Chloe, 2011).
Additionally, it was noted that part of the acquisition, would include Google acquiring Motorola Mobility's patent portfolio and technology assets, which again, for all intent and purposes, would be accounted as a separate reporting event, although Google, would clearly be benefitting economically from such additional patent and technology related assets (Chloe, 2011).
In terms of accounting challenges, especially in preparing the financial statements for the consolidation of the subsidiaries on the date of acquisition, Google was forthcoming in identifying that reconciling the two companies’ extensive Android mobile business would require some detailed collaboration especially where “the mobile business is on an upward trajectory and poised for explosive growth and [wherein] combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences.” (Chloe, 2011).
Another complicating factor is that from Google’s perspective, the purchase of Motorola Mobility Holdings Inc. is by far the largest in Google's history, providing the company assets, revenue, liabilities and corporate income, in the form of goods and services involving smartphones, tablet computers and cable set-top boxes (Rusli, 2011). The sheer volume and size of each companies balance sheets and holdings, will require some very active, rigorous, and comprehensive oversight, especially where at some point, there will have to be come reconciliation between the two company’s extensive financials (Rusli, 2011).
Other challenges involved in such acquisition, is that it will nearly double Google's work force, and accordingly there are likely various potential issues involving stream-lining human resources, management, and employee departments. (Rusli, 2011). Additionally, Google will also have to manage close to 17,000 newly acquired patents, by virtue of its acquisition of Motorola’s line of Droid Smartphones (Rusli, 2011). These will require Google to dedicate an extraordinary amount of human capital and resources to review, process, categorize, and inventory such patents and technology.
In terms of goodwill or other intangible assets derived from the transaction, Google by way of its acquisition of Motorola will automatically transcend Google into an already well-established mobile phone market, including building consumer, supplier, manufacturer, and economic rapport (Rusli, 2011). Although such rapport will eventually translate in to a profit margin for Google, at the outset, its relationship with Motorola, a well-established cell phone provider, cannot be understated, especially since it provides Google an insider track into such market growth (Sottek, 2012). More specifically and as Google was apt to point out, such acquisition would facilitate consumers realizing both an acceleration innovation and greater choice in mobile computing (Google, 2011). Although not directly monetized, such consumer realization translates into product identification, brand recognition, and eventually product loyalty.
Additionally, the acquisition by Google would also foster industry goodwill, in the form of a joint-partnership between complimentary companies, specifically where Google is considered to be well known for software development and Motorola is considered to be proficient at mobile devices (Google, 2011). For many observers, the acquisition of Motorola by Google is in fact an economic positive, where financial value is evidenced in a number of different ways. First, financial value is manifest by the fact that in 2011, there were approximately one billion smartphone subscriptions activated world-wide, accordingly Google, through its purchase of Motorola, gets immediate market access to such potential subscribers (Mui, 2012).
Second, the acquisition allows Motorola, through Google, to now continue and overtake continued market share, including competing with other companies such as Apple and Samsung. As many have noted, the mobile phone market is consistently changing, especially where companies such as Research in Motion Limited (RIMM), are experiencing a downward transition, and other companies, such as Apple, may be experiencing a peak in growth (Sottek, 2012). Thus, in terms of value, Google’s acquisition of Motorola has enabled it to potentially capture such substantial changes in the mobile device market (Mui, 2012).
Last, in terms of financial value, both the mobile phone and now tablet computer market, has been growing at 37% annually (Mui, 2012). As a result, Google’s acquisition of Motorola, enables the company to not only compete in this sector, but to meet the projected market demand for such products, goods and services (Mui, 2012).
An important consideration in the analysis, are the key areas of difference for the acquisition reporting if IFRS was used instead of US GAAP and if the difference would be material to the profitability of the combined entity. The first significant difference if IFRS was used instead of US GAAP post-acquisition, is the timing in terms of revenue recognition, namely where under the former, the IFRS for accounting purposes, would require recognition of revenue when the probable economic benefits from the acquisition will flow to the acquiring entity, in this case, Google and the revenue can be measured reliably. As some Authors have observed, once the merger between Google and Motorola becomes regulatory approved, Google will immediately have access to all of Motorola’s patents and mobile device technology, and arguably, will begin to incur cognizable revenue that can for all purposes, be measured or monetized (Mui, 2012).
Contrast this with US GAAP, which would determine for purposes of accounting, that any revenue from Google’s acquisition of until any contingencies, such as regulatory approval, merger approval, and other necessary acquisition steps are approved. As a result, from the IFRS perspective, Google would likely be able to account for revenue streams significantly earlier compared to an application of US GAAP. There are also a number of other special issues that need to be analyzed, including with respect to the implications of changes in ownership, insolvency, liquidation, the reorganization resulting from such acquisition, and identification of the key accounting areas of difference for the acquisition reporting material to the profitability of the combined entity. Given that Google’s acquisition of Motorola, involves a mobile device related company, one of the most significant implications of the acquisition is regulatory, specifically formal approval by the United States Department of Justice (USDOJ) (King, 2012).
From a regulatory perspective, the acquisition presents possible anti-competitive and anti-trust related issues, which by virtue of U.S. anti-trust regulations will have to be reviewed, scrutinized, and then eventually approved by the USDOJ (King, 2012). From an acquisition perspective, approval by the USDOJ, is a potentially deal-breaking hurdle, and can quickly stifle the prospects of a merger if the USDOJ finds that consumers would experience either increased prices, or that the market share against competitors would be adversely hindered by the acquisition (King, 2012).
Despite these concerns, as of February 2012, the USDOJ formally approved the acquisition of Motorola by Google, finding that, each acquisition is unlikely to substantially lessen competition [noting] an in-depth analysis into the potential ability and incentives of the acquiring firms to use the patents they proposed acquiring to foreclose competitor (King, 2012).
In terms of reorganization, another issue is in regards to logistics, is trying to unify Google’s software business with Motorola’s mobile phone business, while still maintaining that the two companies continue to run as separate business entities. This not only presents business logistical issues, but also accounting processes and reporting related issues.
Another acquisition based issue, is how to manage Motorola’s licenses and patents, including translating them over to Google’s operations, especially where, Motorola Solutions will maintain access, through a cross-license, “to its own Motorola Mobility’s 24,000 patents, even after Google acquires Mobility and where the cross-license is non-exclusive and viable only for the lives of the patents but should shield Motorola Solutions from future patent-related lawsuits” (Woyke, 2011). In other words, Google will need to be able to effectively coordinate and process such voluminous patent technology, including not only for its own software side of the business, but also in terms of assuming the mobile device side of the acquisition also (Woyke, 2011).
Overall, the acquisition of Motorola by Google is substantial, both economically, and from an accounting or reporting perspective. Given the enormity of the acquisition, including the market share and potential demand within the mobile device market, such acquisition evidences a transaction for value that both Google and Motorola will benefit from in years to come. Despite this, Google still faces many acquisition based challenges, including with respect to the selection, choice, and implementation of its various accounting processes, to not only record or account for the acquisition value, but to reconcile the business of both corporate entities, while still allowing both companies to function independently from each other, a balance that will require continued oversight, monitoring, and management.

REFERENCES
Chloe, A. (2011). Google Acquires Motorola Mobility to 'Supercharge' Android.
PC Magazine, Aug. 15, 2011.
Retrieved from: http://www.pcmag.com/article2/0,2817,2391080,00.asp

Efrati, A. (2011). Google's $12.5 Billion Gamble.
The Wall Street Journal, Aug. 16, 2011
Retrieved from: http://online.wsj.com/article/SB10001424053111903392904576509953821437960.html

Google, Inc. (2011). Facts about Google’s acquisition of Motorola, Press Release Retrieved from: http://www.google.com/press/motorola/

King, R. (2012). DOJ approves Google, Motorola Mobility Merger.
ZDNet, Feb. 13, 2012.
Retrieved from: http://www.zdnet.com/blog/btl/doj-approves-google-motorola-mobility-merger/69334 Mui, C. (2012). Why Buying Motorola Was a Good Gamble for Google.
Harvard Business Review. August 17, 2012.
Retrieved from: http://blogs.hbr.org/cs/2012/08/why_buying_motorola_was_a_good.html

Rusli, E. (2011). Google to Buy Motorola Mobility for $12.5 Billion.
The New York Times, Aug. 15, 2011.
Retrieved from: http://dealbook.nytimes.com/2011/08/15/google-to-buy-motorola-mobility/ Sottek, T.C. (2012). Google Acquires Motorola Mobility: The Full Story.
The Verge, May 19, 2012
Retrieved from: http://www.theverge.com/2012/5/19/3030982/google-acquires-motorola-mobility-full -story

Woyke, E. (2011). Motorola Solutions CEO On The Google-Motorola Merger, Patents
And Brand. Forbes Magazine. October 19, 2011.
Retrieved from: http://www.forbes.com/fdc/welcome_mjx.shtml