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Report On Business Google to sell Motorola (minus patents) to Lenovo in $2.91-billion deal

Google will sell Motorola to Lenovo at a steep discount.

BRENDAN MCDERMID/REUTERS

Ever since Google Inc. bought Motorola Mobility – the costliest acquisition in the company's history – in 2012, observers have had a hard time figuring out what the point of the deal was.

So, it seems, has Google.

The search giant announced Wednesday that it will sell Motorola Mobility to Chinese computing giant Lenovo Group Ltd. for $2.91-billion (U.S.). Less than two years ago, Google bought the cellphone maker for $12.5-billion.

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However, Google will still hold on to the vast majority of Motorola's patents – an asset of considerable value as the company struggles to defend itself against myriad lawsuits from other smartphone and tablet manufacturers, as well as so-called "patent trolls." The patents were often cited as one of the reasons Google bought Motorola.

Under the agreement, Lenovo will receive a licence to the Motorola patents.

Coming at the end of a two-week stretch that has seen the company spend billions to acquire a couple of home-automation and artificial intelligence firms, the Motorola sale signals a sharp change of direction at Google. Gone is the obsessive focus on smartphones and tablets that defined the company's last few years. In its place is a broader, longer-term strategy that seeks to capitalize on a future in which everything from glasses to thermostats are connected to the Internet and to each other.

The Motorola sale confirms what some technology industry analysts suspected – that the search engine never quite managed to make Motorola's handsets a viable part of the larger Google ecosystem. Indeed, even as Google's Android operating system became the most popular mobile software in the world, generating billions for companies such as Samsung, Motorola devices continued to make up a tiny portion of the overall market.

"Clearly Motorola was a sicker patient than Google thought it was when they bought it in 2011," said independent technology analyst Carmi Levy. "If this deal does come to fruition and it involves the entire Motorola unit, it will go down as one of Google's biggest acquisition failures."

Initially, a Google spokesperson refused to confirm the deal on Wednesday afternoon, calling it "rumour or speculation." But as news broke in various media outlets, Google was forced to issue a statement providing details of the proposed deal.

"This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere," Google CEO Larry Page said in a statement. "As a side note, this does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry."

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The deal, which is still subject to regulatory approval, will see Lenovo make two payments to Google. The first, worth about $1.41-billion, will be paid when the deal closes, in the form of $600-million in cash and $750-million in Lenovo shares. The remaining $1.5-billion will be paid in the form of a three-year promissory note, according to Google.

For Lenovo, the deal echoes a similar acquisition that helped the company establish a much bigger footprint in the personal computer business almost a decade ago. In 2005, Lenovo purchased the Thinkpad line of computers from IBM, instantly gaining access to a well-known industry brand. Using that brand as leverage, Lenovo has become one of the biggest and fastest-growing companies in the otherwise sluggish PC market.

Lenovo may hope to achieve similar success with smartphones. Even though Motorola controls a very small portion of the overall market, it is a recognized brand, and for two years has had an inside look at the latest improvements made by Google to the Android operating system.

"Lenovo clearly hopes that lightning will strike twice," Mr. Levy said.

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