Market Overview

Google's Stock Split is Carefully Structured

It was revealed on Friday that Google (NASDAQ: GOOG) has very carefully structured its stock split to retain insider control of the company at the same level it was previously at, meanwhile diluting other shareholders' influence and raising the prospect of the current owners keeping lifelong control.

Google announced on Thursday that it would be creating a new class of stock. That would then be listed on the Nasdaq exchange, and then distributed to shareholders via a tax-free dividend.

Essentially, every holder will get a new Class C share for each Class A and Class B share, with will produce a 2-for-1 split. However, it is key that the new shares will be a nonvoting class of stock, weighing the split heavily in favor of the founders.

CEO Larry Page, co-founder Sergey Brin and executive chairman Eric Schmidt retain the same level of control.

Naturally, the shareholders are perturbed, as their voting power is essentially being ripped away from them.

Google's founders, on the other hand, say that the split will provide the company with more flexibility in rewarding employees and in making acquisitions.

On Friday, Deutsche Bank published a research report stating that Google reported solid 1Q revs & operating profit, showing welcome opex discipline. While Deutsche believes the shares may be range bound ahead of a difficult FX comp in 2Q and 3Q and the MMI integration, it sees meaningful upside potential in 4Q driven by improving mobile CPCs in the holiday shopping season as well as ongoing market share gains in mobile and display.

Piper Jaffray said that Google posted upside to Q1 EPS, reporting $10.08 PF EPS on $8.1b in net revenue. Paid clicks accelerated in growth, up 39% y/y, while CPC's accelerated in decline due to continued mix shift, down 12% y/y.

"Beyond Q1 and based on recent WSJ reports that Google intends to invest in Motorola, we believe the integration could weigh on the stock following the company's strong earnings report."

Bank of America Merrill Lynch said that it thinks a dividend would be very well received but instead, after over a year of consideration, Google announced a 2 for 1 stock split in the quarter, issuing new, non-voting stock. This split, expected after June, would preserve the super-voting control of Google's founders (not to benefit outside shareholders).

Posted-In: News Dividends Contracts Management General

 

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