Market Overview

Should Google Go Private?


Google (Nasdaq: GOOG) as a public company has served a lot of folks quite well. Since the largest U.S. Internet search provider went public nearly eight years ago, the shares have risen six-fold. That has made co-founders Sergey Brin and Larry Page very wealthy. As of March 2012, each had a net worth of $18.7 billion, according to Forbes.

That puts the duo in a tie for number 24 spot on the Forbes list of the world's billionaires people and in a tie for number 13 in the U.S. Apparently, all the spoils of Google being public are not enough fro Brin and Page as evidenced by a real whopper in the company's earnings announcement Thursday after the close.

The company said its first-quarter profit rose to $2.89 billion, or $8.75 a share, from a profit of $1.8 billion, or $5.51 a share, a year earlier. Adjusted revenue, minus total acquisition costs, was $8.14 billion with an adjusted profit of $10.08 a share.

That wasn't the big news, though. The big news came in the form of the creation of a new class of Google shares, one that has no voting rights and one that Brin and Page tried to obfuscate as a stock split.

"It's effectively a two-for-one stock split—something many of our investors have long asked us for," the duo said.

That's why there have been so many misleading headlines saying Google is splitting its stock. It's not. And don't go thinking the creation of another class of Google stock is akin to what Warren Buffett's Bershire Hathaway (NYSE: BRK-A, BRK-B) did a while back in creating its B shares. Unbeknownst to some, Google already has B shares. Those unlisted B shares are worth 10 votes apiece. The Google shares listed on the Nasdaq have one vote each.

Said differently, no one could try a hostile takeover of Google because the B shares are basically impossible to accumulate. That's the way Brin and Page wanted things when they decided on a corporate structure for Google.

Of the new Google class, Brin and Page said "These non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure."

When those new shares debut, investors holding the current, mainstream version of Google stock will keep those shares and get the new stock with price dropping by half to account for the doubling in the number of Google shares outstanding.

Neither the traditional Google shares, nor the new ones are worth anything when it comes to voting rights or attempting a takeover. One gets the risks and rewards that go along with the stock's price action. That's it.

Some might interpret that to mean Brin and Page sure enjoy all of the benefits of being a public company, but they sure don't want anyone else telling them how to run Google.

"We recognize that some people, particularly those who opposed this structure at the start, won't support this change—and we understand that other companies have been very successful with more traditional governance models. But after careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users," the two said.

The founder-led approach has served many companies with a traditional corporate structure well. Microsoft (Nasdaq: MSFT) for a while, Oralce (Nasdaq: ORCL) and a little company called Apple (Nasdaq: AAPL), just to name a few.

What Brin and Page are doing amounts to noting more than a dictatorial land, or in this case, share grab. They're telling investors "Hey, we want your money and we want you to help run the price of the stock higher, but you get no voting rights because, well, that's how we want it." (Sarcasm, not an actual quote.)

Kidding aside, if a company wants shareholders to keep quiet, then just go private.

Posted-In: Earnings News Movers & Shakers Pre-Market Outlook After-Hours Center Markets Movers Tech Best of Benzinga


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