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S&P downgrades Google stock on Motorola deal plans

Equity researcher says deal won't protect Google from litigation and could hurt growth and financials. S&P lowers shares' price target by $200 and changes rating from "buy" to "sell."

Google stock and the federal government now have something in common: they've both been downgraded by Standard & Poor's.

Of course, being downgraded by the ratings agency that famously whiffed on highly questionable real estate bonds might be considered a badge of honor in some circles. But the move by S&P does point to considerable market fears about Google's gutsy decision to buy Motorola Mobility for $12.5 billion. Shares of Google were down more than 3 percent today to $539.

S&P equity researchers downgraded Google stock today to a "sell" from a "buy" and lowered the price target to $500 from $700.

David Drummond, chief legal counsel for Google, had said that buying Motorola Mobility and its patents could protect Android from intellectual-property lawsuits. Apple, Oracle, and others have sued either Google or its partners in recent months in an attempt to slow down their competitors and extract licensing fees.

S&P equity analyst Scott Kessler disagreed.

"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," Kessler wrote in a research note cited in a Wall Street Journal report.

"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."