Google made the week’s largest M&A splash, but HP made the week’s most surefire M&A move.
We’ve had two giant tech mergers announced this week: Google (GOOG) agreeing to buy Motorola Mobility (MMI) for $12.5 billion, and Hewlett-Packard (HPQ) agreeing to buy Autonomy (AUTNF) for around $10.3 billion.
One of these deals exudes confidence. The other does not.
I know what you’re probably thinking: Google is the confident one. It’s making a huge move into the consumer hardware space, while HP is going in the opposite direction. And, from a strategic perspective, that’s probably accurate. From an M&A perspective, however, it’s the other way around.
Google has agreed to pay Motorola Mobility a $2.5 billion break-up fee if the deal falters. That’s a whopping 20% of the purchase price, and is the largest known breakup fee outside of the $3 billion AT&T (AUTNF) would be required to pay T-Mobile were that $39 billion transaction not to close (larger in dollars, but far smaller in terms of percentage). More importantly, it’s a reflection that Google has become Microsoft in the eyes of regulators, and even a horizontal move will receive significant scrutiny.
HP, on the other hand, revealed this morning that its break-up fee with Autonomy is just around $116 million, or 1% of the total transaction price. In other words, there are few concerns that the deal won’t be able to close. an HP monopoly is not on anyone’s radar, even though Autonomy seems to be more in line with HP’s existing business than Motorola Mobility is with Google’s.
It’s also worth pointing out a counter-argument, first proposed by Steven Davidoff. He posits that Google is extremely confident, and that it is using the out-sized break-up fee as a way to relay that confidence to regulators. Kind of like going all-in on a poker hand.
It’s a nice turn of the brain, but I think it’s a way to over-think the obvious. It’s true that Google has not yet had an acquisition stopped by regulators — including its recent ITA Software purchase — but clearly it now must pay a premium for the possibility. Either you do that on deal size or on breakup fees. Or both.
I’d be very surprised if either deal didn’t close. But if I were an odds-maker, the breakup fees suggest that Google-Motorola is lower on the board than HP-Autonomy.