S&P Turns Thumbs Down on Google-Motorola Marriage

Standard & Poor’s has down downgraded Google (Nasdaq: GOOG) from a “buy” to a “sell” on Tuesday following the search engine giant’s $12.5-billion offer to acquire Motorola Mobility Holdings (NYSE: MMI).

S&P also reduced Google’s 12-month price target to $500 from $700.

Scott Kessler, head of technology equity research at S&P, said that he was not certain that Motorola’s extensive intellectual property patents would be of any help to Google regarding patent lawsuits over its Android operating system.

In addition, the planned acquisition would likely hurt Google’s growth, margins and balance sheet, given that Motorola recorded a $56 million net loss for the second quarter of 2011.

“After further consideration of [Google’s] plans… to purchase [Motorola Mobility], we see greater risk to the company and stock,” Kessler wrote.

“We expect the transaction to be consummated next year, but later than early [2012]… Moreover, despite [Motorola’s] extensive and valuable patent portfolio, we are not sure it will protect Android from IP issues. We also believe the purchase of [Motorola] would negatively impact [Google’s] growth, margins and balance sheet.”

Google shares declined 3.27 percent on Tuesday.