Google (GOOG) announced that it has agreed to acquire Motorola Mobility Holdings (MMI) for about $12.5 billion. The acquisition will make Google the owner of Motorola Droid smartphones and Motorola Xoom tablets.

Google is paying $40 a share in cash, which represents a 63% premium over Friday’s close for Motorola Mobility Holding. The acquisition is an expensive price to pay to play with Apple.

The deal would give Google complete control over device hardware, software and services and pits Google against some well established players such as Apple (AAPL), Nokia (NOK), Research In Motion (RIMM), HP, Samsung, LG and HTC.

Google had to do something as the noose around Android kept tightening. Its battle with Oracle could mean the end of Android. Apple and Microsoft outbid Google to acquire a portfolio of 7000 patents from Nortel Networks (NRTLQ) which could make the noose even tighter in the future. Following that defeat, Google had preliminary discussions with InterDigital Inc. (IDCC) about a possible acquisition of the wireless technology developer and licenser. The Motorola acquisition give Google a patents portfolio which could be used as a defense for Android.

In January 2011, Motorola split up into two companies, Motorola Mobility Holdings, the handset division, and Motorola Solutions (MSI) which provides networking and communications services. However, Motorola Mobility has come under huge pressure from Apple’s iPhone and the company issued weak guidance for the current quarter.

Most of Motorola’s revenue comes from smartphones and the company has been working to diversify its customer base to defend against the potential loss of Deutsche Telekom AG’s (DTEGY, DTE.XE) T-Mobile USA, a key customer.

Google expects to complete the transaction by early 2012, and it’s been approved by the boards of both companies.