May 4th, 2004

Goldman Sachs appears to have angered Google founders Sergey Brin and Larry Page by breaking strict rules laid out to investment banks pitching to lead the flotation.

Goldman Sachs, the Wall Street goliath that prides itself on its close relations with the world's leading businesses, has had a damaging row with Google that may have cost it $100m in fees.

The internet firm that last week announced plans for a $2.7billion flotation shocked many in the investment world when it excluded Goldman as a lead manager for the deal.

In keeping with its aim to be a new kind of company that strives to both make money and be a force for good, Google wanted a float that bypassed the usual backroom deals that favour large investors over the general public.

Goldman chief executive Hank Paulson is understood to have approached Kleiner Perkins, one of Google's biggest investors, to discuss share allocations.

According to US magazine Newsweek, Google was angered that Goldman appeared to be relying on old-style relationship banking, when it wanted innovation. Google chose Morgan Stanley and Credit Suisse First Boston to lead the float, which was seen on Wall Street as a snub to Goldman.

The fees for the deal, one of the biggest technology offerings ever, are put at between $80m to $100m by rival banks.

Goldman declined to comment, though insiders were sanguine about the loss. Sources confirmed that Mr Paulson had placed calls to the search engine's backers through intermediaries but denied this was against rules laid down by Google.

"What the hell is the chief executive supposed to do but make calls?" said one insider. "If that upset the two fruitcakes who run Google, so be it. Maybe they don't like Hank because he's bald."

Goldman has been hinting that it was uncomfortable with Google's desire to hold an internet auction for the shares, a process aimed at forming a company that is owned directly by the public rather than institutions.

The bank is also understood to have questioned whether the computer systems necessary to make the auction run smoothly will work. Rivals dismissed this as carping. "They were gagging to do it," said one banker yesterday.

Google is looking to raise $2.7billion from a float that is likely to value the business at $30billion. This will leave the 15pc stake held by Mr Brin and Mr Page worth about $4billion each.

The two friends famously founded Google in a Silicon Valley garage in 1998. It was devised as a company that would be different to normal corporations, with a more relaxed, less hierarchical atmosphere. It remains somewhat secretive, declining to reveal how many people use its search engine or how its technology works.

"We will not unnecessarily disclose all of our strengths, strategies and intentions," read the filing to the Securities & Exchange Commission outlining plans for the public offering.

Google's first spat with Wall Street came when it made clear it intended to pay the big banks far less for their advice than is usual.

Fees for leading a float typically run to 7pc of the proceeds. In this case the banks are expected to reap around 3pc.

Google has yet to decide where its shares will be listed. The New York Stock Exchange and Nasdaq are likely to fight hard to secure what it likely to be the biggest internet listing.

Source: Business Telegraph.co.uk

        

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