Google might want to pay $12.5 billion in order to acquire smartphone and tablet maker Motorola Mobility, but no matter what happens Google will still have to pay a bunch of money. Bloomberg reports that Google has a clause in its deal that requires it to pay Motorola a whopping $2.5 billion if it fails to close the acquisition deal. The report claims that the amount for this kind of cancelation fee is six times the normal amount for a deal like this. By contrast, AT&T"s proposed purchase of the wireless carrier T-Mobile carries a $3 billion cancelation fee. That"s compared to the $39 billion that AT&T is willing to pay up if the T-Mobile deal goes through.
So why the high amount for a cancelation fee for the Google-Motorola deal? According to Donna Hitscherich, a senior lecturer in finance at Columbia Business School, the high fee shows that Google is confident that it will close the deal. Hitscherich says, "People don’t do deals to get the breakup fee, they do them to get the deals done."
In related news, Motorola"s stock price soared on Monday after news of Google"s planned takeover deal hit the newswires this morning. The stock price ended up over 55 percent compared to Friday"s stock price. Google has said it is acquiring Motorola in part to increase the number of patents that it currently owns. It also claims that once the deal goes through, Motorola will be run as a separate business and that the Android operating system will continue to be open source.