S&P analyst Scott Kessler, in a widely reported statement from the ratings agency, has been quoted as saying, “…we see greater risk to the company [Google] and stock. We expect the transaction to be consummated next year, but later than early ’12, which GOOG indicated”.
Kessler adds that the reasoning for the downgrade of Google’s stock from “Sell” to one to “Buy” is that, “…despite MMI’s extensive and valuable patent portfolio, we are not sure it will protect Android from IP issues. We also believe the purchase of MMI would negatively impact GOOG’s growth, margins and balance sheet”.
This decision also represents a rapid turnaround in opinion by S&P. Immediately following the announcement of the US$12.5-billion acquisition, S&P issued a bulletin saying, “Standard & Poor’s Ratings Services said today that its ratings and outlook on Mountain View, Calif. based Google Inc.(AA-/Stable/A-1+) remain unchanged following the announcement that Google has signed a definitive agreement to acquire unrated Libertyville, Ill.-based Motorola Mobility Holdings Inc. (MMI) in a cash-based transaction valued at $12.5 billion.”
The initial review of the deal went on to praise Google saying, “the ratings on Google reflect its strong leadership position as a search-based advertising service provider.”
Reporting on Google’s downgrade, the Wall Street Journal’s market blog, MarketBeat, cautions against comparisons with the downgrade of the US’s sovereign-debt. “Of course, we’re talking apples and oranges here: The US got downgraded by S&P’s sovereign-debt group. Google merely got its stock rating downgraded by S&P equity analysts.”
S&P recently caused shockwaves following its contentious decision to downgrade the US Federal government’s debt from AAA,the highest rating, to AA. The move left markets in a frenzy of rapid ups and downs, which the New York Post, memorably, reported as “Crazy stox like a hooker’s draws… UP, DOWN, UP”.