Google IPO

Basic Information

On Thursday, April 29, 2004 Google filed with the Securities and Exchange Commission to sell up to $2.7 billion in stock in an initial public offering. The auction process is taken from the company’s registration statement that was filed with the Security and Exchange Commission. The IPO would rank Google among the fifteen largest IPO’s in US history. Estimates of the post offering market value of the company vary, topping at about $25 billion, making the company more valuable than Sears Roebuck and Marriott International Hotel Inc.  Google plans to offer their IPO using the auction process.

The Dutch Auction Process

The auction system Google intends to follow is based on the Dutch auction system is modeled after Netherlands’ technique of selling flowers. It is a fairly new process in the United States.  Less than a dozen companies have used this format to go public in recent years. In the Dutch auction, the number of shares is fixed but their final price is determined by anyone. The process is believed to help even the playing field by lessening the influence of the investment banks and their favored clients, and sets a fairer market price however with so much potential traffic the auction could overload computer servers. Computers sort and rank the bids by price from the highest to the lowest, calculating the highest bid price that will sell all available shares.

Google IPO Facts

Google has chosen Credit Suisse First Boston and Morgan Stanley to lead the initial public offering (IPO). This assignment is expected to generate investment banking fees of nearly $100 million. Based on Google’s estimated value of $25 billion, the 30% shares held by the two founders, Larry Page and Sergey Brin would make them worth about $4 billion each. Following is a list of other major stockholders of Google who also stand to benefit from the IPO.

The following is a list of top executive officers and the number of shares they currently hold.  This information was released in the Google IPO filing.  

Google’s Proposed Auction Process

As stated earlier, the Dutch auction process differs from the traditionally used methods of underwriting IPO’s in the United States. The IPO and allocation of shares will be determined primarily by Google underwriters on their behalf. The auction will be conducted in five stages; Qualification, Bidding, Auction, Closing, Pricing, Allocation.

The Qualification Process

Google’s objective is to conduct an auction in which the bidder submits informed rather than speculative bids. Before a bid can be submitted, a bidder is required to qualify by obtaining a unique bidder ID and meeting an underwriter’s account eligibility and suitability requirements. A bidder ID is issued electronically after the bidder has assessed an electronic prospectus, the transcript of the presentation by the management team contained in the prospectus, and provided identification information. The bidder is expected to:

  • Read the prospectus and all the risk factors described in the prospectus.
  • Understand the risk factors inherent in the auction process for the IPO, and, in particular, the possibility that the stock price may decline significantly below the IPO price.
  • Understand that the size of the offering may be increased in response to investor demand.
  • Understand that current stockholders, including the founders and members of the management team, are selling, not buying, shares of Class A common stock as part of the initial public offering.
  • Understand that Google and their underwriters will reject bids that are perceived to be speculative or manipulative. If a bidder submits a speculative or manipulative bid, they will not receive an allocation of stock in the IPO.
  • Understand that a certain number of Google’s existing shares will be available for sale to the public at a time specified by the IPO.
Join now!

When the preliminary prospectus becomes available, Google’s underwriters begin taking bids in the auction for the IPO.  By following this approach, Google’s management hopes to enable all interested investors to have the opportunity to qualify to bid and, following qualification, place bids in the auction for the IPO.

Google cautions that the Class A common stock may not be a suitable investment for all bidders. Also, a unique bidder ID is not a guarantee that a bidder will receive an allocation of shares. Investors outside the United States will not be eligible to participate in this offering.

The ...

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