The acquisition will turn Google into a full-fledged cell phone manufacturer

In a bid to strengthen its mobile business, Google announced on Monday that it would acquire Motorola Mobility Holdings, the cell phone business that was split from Motorola, for $40 a share in cash, or $12.5 billion.

The offer by far Google's largest ever for an acquisition is 63 per cent above the closing price of Motorola Mobility shares on Friday last. Motorola manufactures phones that run on Google's Android software.

Android has become an increasingly important platform for Google, as global smartphone adoption accelerates. The platform, launched in 2007, is now used in more than 150 million devices, with 39 manufacturers.

The acquisition would turn Google, which makes the Android mobile operating system, into a full-fledged cell phone manufacturer, in direct competition with Apple.

The deal answers a big question about Google's next strategic step in wireless. Google has been battling with Apple and Microsoft over patents.

Last month, Apple and Microsoft led a consortium of technology companies in a $4.5 billion purchase of roughly 6,000 patents from Nortel Networks, the Canadian telecommunications maker that filed for bankruptcy in 2008.

Google, which lost out in the bidding, criticised the deal as an anticompetitive strategy. Several weeks later, Google paid $4.5 billion for more than 1,000 patents from IBM. Motorola holds more than 17,000 patents.

While the acquisition will move Google directly into the telecommunications hardware business, Larry Page, Google's Chief Executive, said in a blog post that “this acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business.'' Still, the deal is certain to attract significant antitrust scrutiny. The Federal Trade Commission is already investigating Google's dominance in several areas of its business.

The acquisition of Motorola is a notable one for Google, which has made dozens of acquisitions but has only tackled a handful of billion-dollar transactions in its 13-year history. On the company's official blog, Mr. Page said Google was purchasing the handset maker to bolster its Android mobile operating system and increase the number of patents it owned.

Android accounted for 43.4 per cent of smartphone sales in the second quarter, according to Gartner Research, a major increase from the year ago period, when it made up about 17 per cent of sales.

“Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies,'' Mr. Page said.

Carl C. Icahn, Motorola Mobility's second-largest shareholder, urged the company last month to “explore alternatives regarding its patent portfolio to enhance shareholder value.'' Icahn owns 9.03 per cent of Motorola Mobility.

Lazard and the law firm of Cleary Gottlieb Steen & Hamilton advised Google. Frank Quattrone's investment bank, Qatalyst Partners, and Centerview Partners advised Motorola Mobility.

The acquisition has been approved by both boards.

— New York Times