In a statement on the rating reversal, S&P equity analyst Scott Kessler said that the Motorola purchase puts Google at risk. S&P does not believe Motorola's patent portfolio will ease Google's patent woes.
Google shares closed at $539 Tuesday, dropping 3.3%.
"After further consideration of GOOG’s plans announced yesterday to purchase Motorola Mobility (MMI 38, Hold), we see greater risk to the company and stock. We expect the transaction to be consummated next year, but later than early ’12, which GOOG indicated. Moreover, 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. Based on revised DCF analysis, we are cutting our 12-month target price to $500 from $700," Kessler said of S&P's decision to downgrade the stock rating.
Google's decision to purchase Motorola was unexpected, leading many to speculate over the company's real intentions. Google said it hoped "to supercharge the Android ecosystem" with Motorola's patent profile. Mashable's Christina Warren argues that the Google-Motorola deal is not just about mobile -- Google is keen on marrying its software with Motorola hardware.