WEEKLY COMMENT: Google's fancy new float (for US eyes only)

It is like no other float you have ever seen, and, in fact, you have to apply in writing with a sensible letter to see it.

Let's break it down. Google's earnest but likeable founders Larry Page and Sergey Brin are asking potential Google investors to read the entire, 164-page prospectus submitted to the SEC last night. Then, based on what they have read, they must decide how many shares they want and how much they would like to pay for them.

Based on these applications, Google - in league with underwriters Morgan Stanley and Credit Suisse First Boston - will fix an initial public offering price that it hopes will last and will then allocate shares to those people who either matched or exceeded (but not by too much) it. It is thus like a giant game of 'make a thoroughly well-informed guess at the number of sweeties in the sweetie jar'.

The shares on sale will be some of those of Page and Brin themselves, along with those of other existing investors that the two are hoping to persuade to get involved. Its investors include Arnold Schwarzenegger, Tiger Woods and Shaqille O'Neill; no wonder they'll be called Class A stocks.

But, since it is clear at this stage neither how many shares will be on sale, nor how much they will go for, there is no real guessing at the value of this first visit of the world's most eagerly awaited stock to the stock market. The only figure Google has committed to is $2.7bn, an estimate of the total offering price generated so NYSE could set a registration fee ($344,000).

However, for most of our readers there is something of a problem: no-one 'located' outside the US will be able to bid. For such a global business, this is vexing, especially given Google's reasoning: "We have not undertaken any efforts to qualify this offering for offers to individual investors in any jurisdiction outside the US."

In other words, it was too much like hard work to do all this worrying for every market in the world. Given the same SEC filing also points out how everybody at Google wants to 'make the world a better place', you'd have thought the world would have been given the opportunity to take a stake.

Still, the reasoning behind the float as a whole is refreshing, even revitalising. After the nightmares of the boom, Google is absolutely right to do all it can to head off a new overvaluation. The founders make it clear that the last investors they want are speculative ones; they want shareholders prepared to take a long-term view, just as they purport to do themselves. "A management team distracted by a series of short term targets is as pointless as a dieter stepping on a scale every half hour," they say.

They also want to keep control. While the shares on sale will claim precisely the same economic value as those staying within the firm, they will be worth just a tenth of the voting rights. Such a move might upset potential institutional investors (and carpetbaggers), but it might also allay some of the fears that have been doing the rounds since a float was first mooted. Retaining control, as well as aiming for long-term investors, should ensure that Google is not forced into unwanted corners by the demands of shareholders.

All in all, Google's float - we can only hope - will set the tone for those trundling in its wake. The Internet has changed the way we trade in everything - and Google has done more than its fair share. That it should seek to change the way we trade in companies themselves is only to be expected.

"Full SEC filing here ":http://www.sec.gov/Archives/edgar/data/1288776/000119312504073639/ds1.htm



April 30 2004: