Financial Management Essay Example | Topics and Well Written Essays - 1500 words - 4

Financial Management - Essay Example The deal was not an easy one for Google considering that the company had to put in a lot of effort for obtaining the regulatory approvals for the same (Reuters, 2012). The deal was announced at $40 per share which added up to a total of $12.5 Billion which was at a premium of 63% to the price of Motorola shares at the end of August 12, 2011. The acquisition of Motorola was aimed at protecting the viability of Google android considering the fact that Google was recently facing a threat due to patent war existing throughout the industry, due to which the major android manufacturers like HTC and Samsung were being sued by giants like Microsoft and Apple for the infringement of patents (Gaughan, 2011, p.5). Google announced that it will run Motorola as an independent business. The deal received approval from the shareholders as well as from the United States Department of Justice and the EU in early 2012. The approval from Chinese authorities followed and the deal was completed on May 22 , 2012. The deal represented Google Inc.’s biggest challenge to Apple Inc., which was the leading player in the market of mobile phones and tablets. Economies of scale A vertical merger generally has a lower potential for economies of scale than a horizontal merger but the merger of Google and Motorola saw the achievement of economies of scale in both financial and risk bearing economies (The Economist, 2008). Technical, organizational, bulks buying as well as financial economies of scale were achieved from the merger (Thompson, 2012). Coordination improved in terms of cost fit, timing fit, size and communication fit within the business (Arnold, 2005, p.45). The merger immediately showed a success effect by increasing the market share in the world market for smartphones from 46.9% in the first quarter of 2012 to 68.1% in the last quarter of 2012. Economies of scale was achieved by getting other byproduct benefits such as the development of the next generation device for mobil e computing, extra services, for example, advertising to living rooms through Motorola'scable TV boxes which helped in boosting the staggering set top box business, in smartphone designs aimed to fulfil the government regulations and competing with Microsoft’s new release of Windows phones. The company achieved a higher output with lowering the average cost, thus increasing the profitability and ensuring lower price for the customers (Rosenbaum, 2012). Economies of vertical integration The move to buy Motorola had a positive impact on the margins. Major phone manufacturers show a trend of having slim margins (Neale, 2004). But market leaders like Apple and Samsung have been known to maintain a margin of 40-50%. Google maintained net profit margin of 25% without having to subsidize the cost of manufacture in order to attract new clients. The merger showed a 100 to 150 basis points positive impact on the profitability. The merger enabled Google Inc. to supercharge the Android e cosystem and enhanced it competitive features in the mobile computing sector. The merger also opened up new opportunities for cross licencing. Combining complementary resources One of the main motives behind the merger was Google’s intention to accelerate innovation by combining the technical resources of Motorola Mobility. Another primary reason was that Google wanted to acquire the huge number of patents that Motorola had. The acquisition of these patents was likely to give the company a high competitive strength against its