Google’s Initial Stock Sale Is a Truly Public Offering

Google Inc., the company that became a household name by making the Internet simple to navigate, declared its intention Thursday to raise as much as $2.7 billion in the most hotly anticipated initial public stock offering since the tech bubble burst.

In fact, to many observers, the Google IPO is a definitive signal that the 4-year-old Internet bust is finally over.

The offering is expected to turn Google’s co-founders, 30-year-old Sergey Brin and 31-year-old Larry Page, into billionaires and bring a new level of financial maturity to the 6-year-old Silicon Valley company.

And because the shares will be offered in an unusual public auction designed to limit Wall Street favoritism and help individual shareholders, the IPO will give millions of Google aficionados a chance to own a piece of a company they have welcomed into their lives, sometimes spending hours a day with its cheerful search screen and transforming the word “Google” into a verb.

Google became beloved by following a quirky path, pursuing technologies its founders believed would change the world for the better. What’s more, the two launched their search engine when there was plenty of competition. Then, after zooming to the front of the search pack, they declined to cash in during the bubble days when an IPO would have brought sure riches.

Thursday’s IPO filing with the Securities and Exchange Commission hewed to that independent spirit.

In a letter to prospective investors, Brin and Page, who began developing Google’s core technology as Stanford University students working on their PhDs in 1996, said they wouldn’t succumb to Wall Street influence by letting the short-term interests of shareholders bully them into paring back employee perks like on-site washing machines and free meals cooked by the former chef for the Grateful Dead.

Instead, they structured the deal so they could retain control, allowing them to ignore most pressure from even the largest shareholders.

“Google is not a conventional company,” they wrote in the letter, which they called an “Owner’s Manual for Google’s Shareholders.” “We do not intend to be one.”

As measured by dollars raised, Google’s IPO wouldn’t even break into the all-time top 10. But if the company raises all the money it’s seeking, the IPO would be by far the largest for an Internet concern.

With the filing, Google shed light for the first time on one of the most secretive companies in Silicon Valley.

Google said it had been profitable since 2001 and cleared $105.6 million last year on sales of $961.9 million. It has amassed a cash hoard of $454.9 million. Though its name is synonymous with searching the Internet, about 95% of its revenue comes from online advertisements that appear next to search results. Most of the remaining 5% comes from licensing its search engine technology to companies like Time Warner Inc.’s America Online unit.

With so much of its money generated by advertising, it’s not surprising that the Silicon Valley darling considers itself in a league with major media companies. About 42% of all U.S. Internet users -- 65 million people -- visited Google in February, according to market research firm Nielsen/NetRatings.

Google’s founders had long resisted taking the company public as they struggled with their desire to reward employees and their distaste for the pressures that Wall Street puts on publicly held companies.

They were prompted to take the plunge by a 1934 federal securities law that forced them to reveal much of their carefully guarded information, because they had more than $10 million in assets and 500 shareholders, including employees with stock options.

Once they decided to go public, they vowed to avoid handing over too much control to outside investors. Page and Brin decided to issue a weaker class of shares to the public while holding on to a sturdy block of controlling shares that will carry 10 times the voting power. They noted that Washington Post Co., New York Times Co. and Dow Jones & Co. are similarly structured.

“We want Google to become an important and significant institution,” Page and Brin wrote in their letter to prospective shareholders. “That takes time, stability and independence.”

With more than 38 million shares apiece, Brin and Page -- who each earn a relatively paltry salary of $150,000 -- together own 33% of the company’s controlling Class B shares and stand to reap the largest windfall from the IPO, which some analysts believe will value the company at as much as $25 billion. Chief Executive Eric Schmidt, who receives a salary of $250,000 a year, owns 6% of the Class B shares. Public shareholders will receive the less powerful Class A shares.

Google’s leaders said they planned to eschew several standard practices of public companies, including issuing financial predictions each quarter and trying to smooth quarterly results to match shareholders’ expectations.

“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 wrote in the letter to investors.

The letter, which securities lawyers said was unusual in its candor and intimacy, also revealed a sense of the global mission felt by “Googlers,” as the company’s 1,900 employees call themselves.

“We believe a well functioning society should have abundant, free and unbiased access to high quality information,” Page and Brin wrote. “Google therefore has a responsibility to the world.”

Later in their seven-page letter, they said: “We aspire to make Google an institution that makes the world a better place. With our products, Google connects people and information all around the world for free.... By releasing services for free, we hope to bridge the digital divide.”

The IPO is not expected to single-handedly revive the tech sector or usher in another round of the irrational exuberance that caused the Internet bubble to swell during the late 1990s. Instead, it heralds a return to the old-fashioned way of rewarding a strong, profitable company.

“We’re really back to the Silicon Valley of the ‘70s, ‘80s and early ‘90s,” said Peter Thiel, the former chief executive of PayPal Inc. who now runs Clarium Capital Management, a San Francisco hedge fund. “It’s back to its former, more serious self.”

Google didn’t say when it planned to offer its shares to the public. The price will be set after bids from prospective buyers come in. (In true geek fashion, the maximum amount Google said it could raise, $2,718,281,828, is a tribute to the irrational number “e,” which is used in calculus to solve problems involving rates of growth or decay.) The Mountain View, Calif., company also declined to specify whether it would list its shares on Nasdaq or the New York Stock Exchange. Credit Suisse First Boston and Morgan Stanley are underwriting the offering.

In conjunction with the offering, Google named three new members to its board of directors: Stanford University President John Hennessy; Genentech CEO Arthur D. Levinson; and Intel President Paul Otellini.

Google said it planned to use the money raised by the stock offering to make substantial upgrades to the computing system that processes its search results so it can better compete with Yahoo Inc. and Microsoft Corp., two Internet heavyweights that are investing heavily in search features with an eye toward wooing Google’s users. Analysts said they also expected Google to make acquisitions and expand into new businesses.

Allen Weiner, a research director with Gartner Inc., noted that Google was increasingly focused on letting computer users search for specific and personalized content, such as FedEx Corp. tracking numbers and flight information.

“Google needs to add more of those distinctive and innovative elements that enrich people’s everyday lives and businesses,” he said. “The more disparate elements that live below this powerful search engine, the more they will differentiate themselves as an evolving media company.”