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Blockbuster: Google buying Motorola Mobility for $12.5B

Google said it will pay $40 a share in cash for Motorola, a 63 percent premium over the company's closing stock price on Friday. The acquisition will "mildly" add to earnings once the deal closes, which is expected by year's end or early 2012.

The deal shakes up the Android world. For the first time, Google will have a direct hand in the mobile business that it has fostered from a distance. While Google creates the Android operating system critical to running millions of smartphones and tablets, it has yet to get into the design and manufacturing business itself, aside from a few experimental models with handset partners such as HTC and Samsung.

With Motorola, Google also gets a treasure trove of patents to defend itself and its partners with against a rising tide of legal opposition. Over the past few months, major technology players such as Apple and Oracle have sued either Google or its partners in an attempt to slow down their competition and extract licensing fees.

Google's $12.5B hookup with Motorola Mobility

Motorola Chief Executive Sanjay Jha talked up the strength of its patent portfolio during the company's most recent quarterly conference call, suggesting that the company was willing to step into the legal fray as well. The company already has an outstanding dispute with Microsoft and Apple. Last month, billionaire activist investor Carl Icahn disclosed that he was pushing for Motorola to sell its patent portfolio because the need for intellectual property has reached at an all-time high.

Motorola, along with HTC, has been a major early supporter of Android. Jha chose to scrap Motorola's other projects and focused solely on Android, which paid off immensely when Verizon Wireless chose the original Droid to push as its flagship phone during the 2009 holiday-shopping season. AT&T more recently chose Motorola's Atrix as a flagship phone. Motorola has also partnered with Sprint Nextel. Last month, it reported better-than-expected second-quarter results and hinted at a strong fourth quarter.

But the company has struggled recently too. While the Atrix featured heavy promotional support from AT&T, it wasn't a breakout hit. Motorola's first tablet, the Xoom, failed to make a dent in the market, even after a price cut. The 4G capability for its Xoom is still unavailable despite hyping the feature at the Consumer Electronics Show in January. And the company's long-delayed Droid Bionic for Verizon Wireless isn't expected until next month.

Google Chief Executive Larry Page said on a conference call today that Motorola will be run as a separate unit of the company.

Google will be attempting to maintain its neutral stance in Android land even after the deal.

"Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community," Andy Rubin, senior vice president of mobile at Google, said today in a statement. "We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices."

Rubin added on the call that the other major Android vendors showed "enthusiastic support" for the deal.