Acquisition of Motorola Mobility by

Lenovo

Submitted to
Md Awal Al Kabir
Manpower Planning and
Forecasting
Lecturer, Independent University Bangladesh

Submitted by
Md Asifur Rahman
Khan
Id No 1210774

Executive Summary
This report is on the Acquisition of Motorola Mobility by Lenovo. The main purpose was to
know about the acquisition of Motorola mobility by Lenovo, Background of the acquisition, and
consequences of the acquisition and the Financial and Human Resource Impact of Holder and
Subsidiary Company. This report intends to show these above mentioned factors in Lenovo and
Motorola Mobility Acquisition.

Introduction
Mergers And Acquisitions - M&A' A general term used to refer to the consolidation of
companies. A merger is a combination of two companies to form a new company, while
an acquisition is the purchase of one company by another in which no new company is formed.
The main reasons of Merger or Acquisition are to join forces to strengthen market position, cut
back cost, diversification or to share technologies, ideas, expertise for future growth of the
companies

Company Profile

Lenovo is one of the world's leading personal technology companies, producing innovative PCs
and mobile internet devices. A global Fortune 500 company, Lenovo is the world's largest PC
vendor and fourth largest smartphone company. Lenovo is a US $47 billion personal technology
company with more than 57,000 employees (including joint ventures) in more than 60 countries
serving customers in more than 160 countries. Lenovo is a global company that is incorporated
and headquartered in Hong Kong, with operational centers located strategically around the
world, the largest ones being in Beijing, China, and Morrisville, North Carolina.

History of the Company

Lenovo brand came into existence only in 2004, the company has a much longer history. In
1984, Legend Holdings was formed with 200,000 RMB (US$25,000) in a guard house in China.
The company was incorporated in Hong Kong in 1988 and would grow to be the largest PC
Company in China. Legend Holdings changed its name to Lenovo in 2004 and, in 2005, acquired
the former Personal Computer Division of IBM, the company that invented the PC industry in
1981. In October of 2014 Lenovo acquired Motorola Mobility from Google to strength it Mobile
Business Unit.

Product Portfolio

Tablets
Laptops
Desktops
Workstations
ThinkPad
Mobile Phones
Accessories

Company Profile

Motorola created the mobile communications industry. Motorola invented most of the protocols
and technologies that make mobile communications possible, including the first mobile phone,
the first base station, and most everything in between. Motorola was divided in two divisions
Motorola Mobility and Motorola Solution. In this Report we focus on Motorola mobility.

History of Motorola
Motorola Mobility is an American mobile device computer technology company, headquartered
in Chicago, Illinois, United States. The company was formed on January 4, 2011 by the split of
Motorola Inc. into two separate companies; Motorola Mobility took on the company's consumeroriented product lines, including its mobile phone business and its cable modems and set-top

boxes for digital cable and satellite television services. In August 2011, only several months after
the split, Google announced that it would acquire Motorola Mobility for US$12.5 billion. The
deal closed in May 2012, after which it also sold its cable modem and set-top box business to
Arris Group. Under Google ownership, Motorola Mobility increased its focus on the entry-level
smartphone market, introduced one of the first Android Wear smart watches, and also began
development on Project Ara, a platform for modular smartphones with interchangeable
components. On October 30, 2014 Google sold Motorola Mobility to Chinese personal computer
and mobile device maker Lenovo for $2.91 billion. Lenovo disclosed intent to use its purchase of
Motorola Mobility as a way to expand into the U.S. smartphone market.

Product Portfolio
Moto Smartphones
DROIID Smartphones
Moto 360
Accessories

Background of the Acquisition

On 15 August 2011 Google announced it had bought Motorola Mobility for $12.5 billion in cash.
With it Google acquired more than 20,000 mobile patents.
On January 29, 2014, Google announced it would, pending regulatory approval, sell Motorola
Mobility to the Chinese technology firm Lenovo for US$2.91 billion in a cash-and-stock deal.
On October 30, 2014 Lenovo bought Motorola mobility with approximately US$660 million in
cash and 519,107,215 newly issued ordinary shares of Lenovo stock, with an aggregate value of
US$750 million, representing about 4.7 percent of Lenovos shares outstanding, which were

transferred to Google at close. The remaining US$1.5 billion will be paid to Google by Lenovo
in the form of a three-year promissory note. A separate cash compensation of approximately
US$228 million was paid by Lenovo to Google primarily for the cash and working capital held
by Motorola at the time of close.

The transaction has satisfied all regulatory requirements and customary closing conditions,
including clearance by competition authorities in the U.S., China, EU, Brazil and Mexico, and by
the Committee on Foreign Investment in the United States (CFIUS). This is the fifth time since
2005 Lenovo has been cleared by CFIUS to acquire a U.S. business.

Google will maintain ownership of a majority of the Motorola Mobility patent portfolio, while
Motorola will receive a license to this rich portfolio of patents and other intellectual property.
Motorola will retain over 2,000 patent assets and a large number of patent cross-license
agreements, as well as the Motorola Mobility brand and trademark portfolio.

Lenovo will operate Motorola as a wholly-owned subsidiary. Lenovo has integrated its Mobile
Business Group (MGB) into Motorola Mobility. Motorola will conduct business under its name.
Two Companies will sell phones separately but Lenovos Mobile Business Group (MBG) will
continue to drive Lenovos overall mobile business, but will now rely on Motorola to design,
develop and manufacture smartphone products. Rick Osterloh, formerly president, Motorola, is
the leader of the combined global smartphone business unit, which will be under Motorola legal
entities. Osterloh will continue to report to Chen Xudong, senior vice president, and president,
MBG.

Consequences of Acquisition
A corporate merger or acquisition can have a profound effect on a companys growth prospects
and long-term outlook. But while an acquisition can transform the acquiring company literally
overnight, there is a significant degree of risk involved, as mergers and acquisitions (M&A)
transactions overall are estimated to only have a 50% chance of success.
There are Certain Consequences followed after the acquisition of Motorola Mobility to Lenovo.
Becomes Worlds #3 Smartphone Maker; Prepares for Even More Growth
As of Acquisition of Motorola and merging Lenovos Mobile Business Group (MBG) with
Motorola Lenovo has gain an edge in the mobile phone market. Lenovo becomes the third largest
smart phone maker after Samsung and Apple.
Today we achieved a historic milestone for Lenovo and for Motorola and together we
are ready to compete, grow and win in the global smartphone market. By building a
strong number three and a credible challenger to the top two in smartphones, we will
give the market something it has needed: choice, competition and a new spark of
innovation, said Yang Yuanqing, chairman and CEO, Lenovo after the acquisition.

Join forces for wider Distribution Channel

The combined might of Lenovo and Motorola puts at 8 percent of the global smartphone market,
and says the wider distribution channels are a considerable advantage of the merger.

Large product portfolio

The acquisition of the Motorola brand and Motorola's portfolio of innovative smartphones like
Moto X, Moto G, Moto E and the DROIDTM series, as well as the future Motorola product

roadmap. Though Google has retained the Advanced Technologies & Projects unit and all but
2,000 of the company's patents. Lenovo will receive royalty free licenses to all the patents
retained by Google. Motorola already has strong momentum in the marketplace led by highly
successful new product launches and groundbreaking innovations, which have provided solid
growth. Beyond smartphones, the Moto 360 watch has captured consumer attention and
established Motorola as a company expanding into emerging mobile device areas.

Collaboration on research and development

Motorola has more experience with phones and mobile technology than almost anyone on the
planet they have major mobile engineering and design experts. Motorola's research and
development resources will merge with Lenovo's, which could result in more feature-rich
handsets under multiple brands. Motorola also has developed algorithms to adjust smartphone
behavior based on background sounds, locations and user behavior, which Lenovo could bring to
its smartphones. Lenovo welcomes the addition of a new portfolio company with nearly 3,500
employees around the world including about 2,800 in the U.S. who design, engineer, sell and
support Motorolas outstanding devices.
Motorola is in great hands with Lenovo, a company thats all-in on making great
devices, said Larry Page, CEO, Google.

Mature market and Trusted Brand

Motorola's offerings in mature markets will complement Lenovo's growing smartphone presence
in developing countries. Motorola has a strong foothold in US and many European countries in
addition highly-recognizable Motorola brand name. Motorola has deals with U.S. carriers
(particularly Verizon), and is currently the the third largest smartphone maker in the U.S. a
distant third, far behind Samsung and Apple and basically tied with LG.

Lenovo had previously stated that one of the reasons it bought the division for $2.9bn was to take
advantage of Motorola's existing relationships with network operators in North America and
Europe.
Still in Loses
When Google bought Motorola it was losing money and was trying hard to get on the profit
table. After 29 months of staying in Googles management Motorola was still a losing concern
for Google. Lenovo bought Motorola from Google while it was still going through $1 billion loss
a year. But Lenovos Chief Executive Officer Yang Yuanqing is hopeful to make the motorola
profitable within four to six quarters without eliminating jobs. Improved profitability will come
from increased production and sales as the company targets emerging markets, Yang said. The
company also will seek to reduce costs from internal communication and computing services.

Low morale of Motorola Employees

Motorola does have a lot of talent and a vast expertise in making phones. Motorola has lost
money for years. Its seen itself acquired, carved up, sold off, and had more than 20 percent of its
people jettisoned while it was under Google and now its just been sold again to Lenovo. In
addition, though Lenovo has expressed no plans for laying off employees, Motorola Mobility
workers still fear of layoffs. These turmoil weighs heavily on morale.

Financial Impact
While Motorola was counting loses before the merger with Lenovo but Lenovo is positive to
make it profitable within 6 Quarters. Here we will discuss the prominent result from acquiring
Motorola Mobility.
Lenovos profit from mobile devices increased 15% in Q4 2014 after acquiring Motorola
Mobility.

Figure: 1.1
Lenovos smartphone shipment also increased 10% after combining forces with Motorola in
Q4FY 2014

Figure: 1.2
According to the statement from Lenovo, Revenues from mobile business jumped 33 percent
year on year to $2.1 billion, helped by the company's purchase of Motorola's mobile business in
October 2014.
Smartphone sales grew two percent year on year to 16.2 million in the second quarter, while
tablet shipments rose four percent year on year to 2.5 million, the statement added.

Human Resource Impact

As part of the restructure, Lenovos Mobile Business Group Mobile integrates its operation with
Motorola mobility. Lenovos Mobile business unit will rely on Motorola to design, develop and
manufacture smartphones. Motorolas headquarters will remain in Chicago. Motorolas Former
CEO Rick Osterloh,, will be the leader of the combined smart phone business unit and report to
Chen Xudong, senior vice president, and president, MBG.
After the acquisition, Lenovo welcomed the addition of a new portfolio company with nearly
3,500 employees around the world including about 2,800 in the U.S. who design, engineer,
sell and support Motorolas outstanding devices.
Motorolas employees have seen a lot of changes in last 5 years with being acquired twice.

However, As in August 2015, Motorola Mobility laid off 500 position or 25 percent of its
workforce in Chicago, as part of a major restructuring by its parent, China's Lenovo Group

Lenovo also reduced their workforce by 3,200 people coming from non-manufacturing parts of
the business. That amounts to 10 percent of the non-manufacturing group and 5 percent of their
total global 60,000 employees. Lenovo estimates reduction of expenses along the lines of $650
million in the second half of the year.

The move belongs to a complex restructuring, which also aims to better leverage the
complementary strengths of Lenovo and Motorola by simplifying the product portfolio with
clearly-differentiated models, and relying solely on Motorola for design, development, and
manufacturing of smartphones. Altogether, the cost-cutting measures will shave about $1.35
billion of expenses on an annual basis.

Conclusion
The main reasons of Merger or Acquisition are to join forces to strengthen market position, cut
back cost, diversification or to share technologies, ideas, expertise for future growth of the
companies. In Lenovo Motorola Acquisition we can see that worlds largest Pc Maker
Company bought Motorola and merge Lenovos Mobile Business with Motorola to expand their
Market and have Motorolas expertise to make better phones using research collaboration. And
the gain for Lenovo already started to come with being the Number 3 position in Smart Phone
Maker and an increase in profit in Smart phone division. And for Motorola Mobility, they have
found a perfect corporate parent who shares the same goals of Motorola, to become the global
leader in smartphone industry and providing customers with choice, competition and innovative
hardware.

References

1. Lenovo, Lenovo newsroom, 2014. News releases: Lenovo Completes Acquisition of Motorola
Mobility from Google.
http://news.lenovo.com/article_display.cfm?article_id=1860 (Accessed 2015-12-06)
2. Dawson, Jan, 2015 EARNINGS, LENOVO, MOTOROLA, Q4 2014, SMARTPHONES

MOTOROLAS IMPACT ON LENOVO [Blog] 3 February

http://www.beyonddevic.es/2015/02/03/motorolas-impact-on-lenovo/ (Accessed 2015-12-06)
3. International Data Corporation (IDC), 2015. Smartphone Vendor Market Share, 2015 Q2
http://www.idc.com/prodserv/smartphone-market-share.jsp (Accessed 2015-12-06)