In its largest single acquisition to date, Google said Monday that it will purchase Motorola Mobility Holdings for $12.5 billion -- giving the search engine company direct access to the handheld devices business.
The offer translates into $40 a share for Motorola Mobility, a 63 percent premium above the company's closing price on Friday. Motorola Mobility just split off from its parent Motorola eight months ago.
Although Motorola cellphones already run on Google's Android software, Google's acquisition of the company will allow it to actually make handheld devices, placing it in direct competition with Apple.
The Android mobile operating system has become an increasingly lucrative platform for Google in the still-burgeoning smartphone market. The software was launched in 2005 and is now used in more than 150 million hand-held devices and has 39 different manufacturers.
Google said in a statement the acquisition will enable it to enhance the Android operating system and increase its popularity among smartphone users.
"Motorola Mobility's total commitment to Android has created a natural fit for our two companies," said Google CEO Larry Page. "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers."
Some expect Google's most recent purchase might ruffle the feathers of other cellphone manufacturers who, as licensees of Android, will be in direct competition with Motorola Mobility. In an effort to placate those concerns, Google said it will run its new holding as a separate business, adding it "will continue to work with all of [its] valued Android partners to develop and distribute innovative Android-powered devices."
Google has been battling Apple and more recently, Microsoft and its Windows Phone 7, for dominance in the mobile phone market. A Gartner study revealed that 36.3 million Android devices were sold during the first quarter, making it the most popular mobile operating system. However, it still faces steep competition from Apple, which reportedly expects its total number of iPhone users to reach 100 million by the end of 2011.
Earlier this month, Google lost a bid to purchase thousands of patents from the now-bankrupt Nortel Networks after they were snatched up by Microsoft, Apple and a number of other companies. Google Chief Legal Officer David Drummond reportedly blasted his competitors, accusing them of rushing to buy up the patents in an effort to hamper the increasing popularity of Android software.