Google IPO Is a Matter of Time
Google Inc. became an Internet phenom by helping people find things. Shame it couldn’t have found a better time for an initial public offering.
Google shares could begin trading on Nasdaq as early as Wednesday. If they do, they’ll be hitting the market in one of the roughest climates for IPOs since the dot-com crash.
The Mountain View, Calif.-based search engine company said Monday that it had asked the Securities and Exchange Commission to give final approval to its IPO registration by 1 p.m. PDT today. Within an hour of that approval, Google said, its investment bankers may assign a price to the stock and start approving the bids that investors began placing Friday. The shares could start swapping hands the next morning, under the ticker symbol GOOG.
The disclosure, made on its website, signaled Google’s intention to proceed even as other stock offerings are being shelved out of fear that they won’t net much cash in a bear market.
In August alone, 16 companies have withdrawn their IPO registrations, according to Thomson Financial. That’s the most withdrawals in a single month since April 2001, and August is only half over.
Still, as one of the Internet’s strongest companies, Google seems increasingly unlikely to join their ranks. And several experts say that’s a smart decision, even if Google starts trading at a price below its predicted range of $108 to $135 a share.
“They’re so well publicized that if they withdraw now, it would be the equivalent of a candidate for president withdrawing,” said Meir Statman, a professor at Santa Clara University’s Leavey School of Business. “I don’t think it makes sense for them to postpone. They’re not sure the environment will be better next time.”
When Google said in April that it planned to raise as much as $2.7 billion (it now estimates it will take in $1.7 billion) in a gargantuan IPO that would value the company at $36 billion, observers from Silicon Valley to Wall Street predicted that it would open the door for more Internet IPOs.
Then a raft of quarterly reports and earnings outlooks from giants including Yahoo Inc. and IAC/InterActiveCorp as well as small online advertising concerns such as ValueClick Inc. fell short of investors’ lofty expectations. Their stock prices plunged as a result.
Smaller Internet companies such as PlanetOut Inc., a media company catering to a gay audience, and Claria Corp., which places ads on computer desktops, have pulled their IPO plans. Beverly Hills-based online dating service MatchNet Inc. cited “a faltering market for Internet-related IPOs” in its decision to delay its offering and said it would “reconsider a U.S. offering next year if market conditions improved.”
Couple the tech slump with the country’s general economic woes, and the Google offering starts to look less appealing, said Richard J. Peterson, chief market strategist for Thomson Financial. But none of the companies that delayed their IPOs are as financially sound as Google, which turned a profit of $143 million on $1.4 billion in sales during the first half of the year.
“Google has the might and the resources to withstand this awful environment,” Peterson said.
That’s lucky for Google, because it arguably has made its IPO prospects more difficult through a series of missteps associated with its unusual auction-style offering.
The latest was the decision by co-founders Larry Page and Sergey Brin to grant an interview to Playboy magazine the week before Google’s lawyers filed the IPO registration papers.
News organizations reported that the SEC was debating whether to delay the offering on the grounds that the interview constituted a violation of the “quiet period” that prevents executives from promoting their stock in advance of an IPO.
Google said in an amended prospectus that it didn’t expect the men’s magazine interview to delay the offering. But the company corrected a few factual mistakes in the article and included it in the filing, known as the Form S-1, for potential investors to peruse.
“It’s probably the first time an S-1 included verbatim the contents of a Playboy article,” said Mark Mihanovic, a Los Angeles lawyer with McDermott Will & Emery.
In the same prospectus, updated Monday, Google disclosed that the SEC had opened an “informal inquiry” into the company’s failure to register 23.2 million shares it doled out to employees and consultants. Google may be on the hook for up to $25.9 million to buy back those shares. But with the grant price at a weighted average of $2.86, few shareholders are expected to accept the buyback.
Maybe the IPO was doomed from the start, said Barry Nalebuff, a professor at the Yale School of Management. The very thing that attracts investors to IPOs -- the chance at a first-day rocket ride on a hot stock -- was eliminated by Google in its effort to include individual investors.
Underwriters Morgan Stanley and Credit Suisse First Boston have been accepting bids by phone, mail and fax since Friday morning. They will then calculate the highest price at which all 25.7 million shares would be sold; everyone who bid at or above that clearing price will pay the same amount for their shares.
“One of the things that makes the regular IPO work is the sense of getting in on something that’s hard to get,” Nalebuff said. “The damn problem with this open IPO is that everyone has been invited to the club.”
