|The $12.5bn deal saw Morotorola's shares jump 57 per cent while Nokia's gained more than 10 per cent [Reuters]
Google has announced a deal to acquire phone maker Motorola Mobility for $12.5bn, allowing the US internet search leader to "supercharge" its Android operating system, a joint statement from the boards of both companies said.
The California-based company said the deal would close by the end of 2011 or early in 2012, and requires regulatory approvals in the United States, European Union and other areas, as well as the blessing of Motorola Mobility's shareholders.
Monday's move, the company's biggest foray into the hardware market, comes weeks after a failed attempt to buy patents from bankrupt Nortel.
The deal will give Google an intellectual property library in wireless telephony to wage war on Apple and Microsoft.
But the purchase, which took many in Wall Street by surprise, means Google risks alienating the hardware partners that license its free Android software.
Larry Page, Google's chief executive, said on Monday that Android, the leading smartphone software, would remain open to all in what was seen as a move to allay investors' fears.
"Motorola has a strong patent portfolio which will help protect Android from anti-competitive threats from Microsoft, Apple and other companies," Page told analysts on a conference call.
John Biggs, editor-in-chief of CrunchGear, a New York blog covering gadgets and computer hardware, told Al Jazeera: "Motorola gets a shot in the arm. They have a second chance to make a difference in the mobile phone market."
Page said that Motorola Mobility, which is based in Illinois, would be run as a separate company, licensing Android software in the same way as its rivals, which also include HTC Corp and LG Electronics.
Richard Windsor, Nomura Securities global technology specialist, said: "The danger is that other handset makers feel disenfranchised. Motorola is the weaker player. This could actually collapse the entire community."
Motorola split into two separate companies earlier this year, with Mobility developing and manufacturing mobile phones, and Motorola Solutions covering wider technologies for governments and corporate customers.
Motorola's shares jumped 59 per cent, while Nokia's stock gained more than 10 per cent amid speculation the Finnish mobile company is now an acquisition target.
Monday's annoucement appears to mark a departure from Google's strategy of beefing up its internet search and advertising empire with forays into video and social networking.
After being shut out of the Nortel deal, David Drummond, Google's chief legal officer, wrote a blog post accusing Microsoft, Apple and Oracle of colluding to buy up patents and curtail growth of its Android mobile operating system.
While Apple's iPhone is one of the most talked about phones in history, Android has managed to surpass it as the market leader by winning the support of numerous phone makers, including Motorola's bigger rival Samsung Electronics.
Android controlled about 43.4 per cent of the smartphone market at the end of the second quarter, ahead of Nokia with 22 per cent, according to Gartner data. Apple ranked third with 18 per cent, the data showed.
As part of the deal, Google also acquires Motorola's set-top box businesses, giving its nascent TV operation a much-needed boost by providing it with a more direct route into the home.
The deal values Motorola Mobility at $40 per share in cash, a 63 per cent premium to its Friday closing price on the New York Stock Exchange.
"It's a deal that will take time to pay off, but they have a lot of cash and they want to chase after profit," BGC Partners analyst Colin Gillis said, referring to the fact that Android has not been profitable thus far.
Given his status as Motorola's largest shareholder, the deal represents a big win for activist investor Carl Icahn.
He has urged Motorola to consider splitting off its patent portfolio to cash in on surging interest in wireless technology. As of July, Icahn held an 11.36 per cent stake in the company.
In a statement, Icahn said the deal is "a great outcome for all shareholders of Motorola Mobility".