October 24, 2003

Google is considering holding a massive online auction of shares early next year in an initial public offering that investment bankers predict could value the internet search-engine company at more than $15 billion.

An electronic auction would be designed to prevent a recurrence of the sort of financial scandals that have engulfed Wall Street since the collapse of the dotcom bubble, according to a person close to the company. It could also slash the underwriting fees paid to investment banks, the person added, and in the process help to break Wall Street's hold on the lucrative IPO business.

Google goes to market
Silicon Valley's most keenly awaited offering may mark a radical departure from the 1990s boom. A Google IPO has been one of the most eagerly anticipated events on Wall Street and in Silicon Valley since the dotcom bust. Though only five years old, the search-engine company has avoided the traps that caught many early dotcom companies.

"It will be worth $15bn-$25bn," said one person who has been involved in the process. "This has never happened before." Other "hot" IPOs, from Apple Computer in 1980 to Netscape in 1995, have generally involved unprofitable companies, this person said. Google, by contrast, is highly profitable and has grown into a large global business.

Though the company does not disclose financial information, its profits are growing rapidly and are reckoned to be running at an annual rate of about $150m on revenues of $500m. Google executives, led by George Reyes, chief financial officer, met a number of leading investment bankers last week to sound them out about an IPO. The meetings marked the start of a process that is likely to lead to a stock market listing by about March next year, a person familiar with the IPO said. The early discussions have not touched on how much Google is worth.

The company has instead sounded out bankers about how the share sale should be handled. Executives have raised the possibility of using alternative methods, such as holding an online auction. Google will be the one IPO no self-respecting investment bank can afford to miss out on. That gives it an excellent bargaining position from which to insist that Wall Street, as well as Silicon Valley, takes steps to restore its reputation.

An auction would allow all investors to bid for Google's shares directly, rather than leave it to an investment bank to decide on the price of the shares and who should receive them. One person close to Google complained that Wall Street's existing method of selling shares allowed banks to set the prices of dotcom stock issues deliberately low, then hand them to favoured investment clients.

Many of the shares were sold quickly, or "flipped", as share prices soared on the first day of trading. However, investment bankers warned that a pure online auction would risk setting an unrealistically high price for Google's shares, since there would not be enough stock available to meet the massive demand from private investors captivated by the prospect of a new dotcom gold-rush.

"They could get a $100bn" stock market value, said one person involved. "However, all the shares would end up with Aunt Agatha in Des Moines and Uncle Milt in Pittsburgh and there would be no real public market at all." Frank Quattrone, the star investment banker who controlled many of the dotcom stock allocations, is awaiting the verdict in a trial that sprang out of the scandals.

He was accused of destroying evidence to hamper an investigation into the affair.

Source: Financial Times / Asia

        

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