August 18, 2004

Google slashed the price of its IPO share offering Wednesday.

Google effectively reduced the range on its initial public offering (IPO) to between $85 and $95 per share from between $108 and $135.

It also said shareholders more than halved the number of shares they planned to sell to 5.5 million from about 11.6 million, in light of the lowered price. Google still plans to sell about 14.1 million shares itself.

The Mountain View, California-based company disclosed the changes in a statement posted on its IPO Web site. Google spokeswoman Cindy McCaffrey confirmed the Web site contents, but declined further comment.

The changes reduce the maximum size of the IPO to about $1.9 billion, excluding over-allotments, and the potential maximum valuation of the company to $25.8 billion from $36.6 billion, based on securities filings. Google is conducting its offering as the overall market for IPOs slumps.

"The last thing you want when markets are fragile is a high-profile IPO running into difficulty," said Michael Browne, a fund manager at Sofaer Global Fund in London. "Sentiment-wise, it's not good."

The company also said it asked the U.S. Securities and Exchange Commission to declare its registration effective Wednesday at 4 p.m. EDT. Google said the selling shareholders might offer an additional 2.9 million shares to meet demand.

The price cut did not surprise some fund managers who noted the jittery market for technology shares and Google's unorthodox choice to use a modified version of a Dutch auction to sell its shares.

In a typical Dutch auction, the offering is launched at the highest price at which all of the shares can be sold. However Google could price the IPO lower to get a wider distribution of shares to retail investors. That in turn may crimp demand from institutions who fear that a larger than normal retail investor base could make the stock particularly volatile.

"There's no way to accurately value them," said Elaine Crichton, a fund manager for Aegon Asset Management UK, which invests $2 billion of assets. "In this brand new world of a lot of due diligence, you can't say you went for an IPO because Google is a good brand."

Also possibly weighing on the IPO is the uncertainty Google faces in a brutally competitive market where rivals Microsoft and Yahoo have the funds to invest heavily in development.

"At some point, they may have to move into lower margin businesses, and we think the way the deal has been structured limits aftermarket demand," said Douglas Wright, a portfolio manager for Britannic Asset Management in Edinburgh, Scotland.

While the IPO might turn 30-something co-founders Sergey Brin and Larry Page into very wealthy men, it has been beset by problems, especially in the last two weeks. Google first set forth plans for the IPO in April.

The problems include the weakened IPO market, concerns that a Playboy magazine interview with the founders might have violated securities rules, and the disclosure that the SEC has started an informal inquiry into Google's offer to buy back 23.2 million shares it may have issued illegally.

Tuesday, the SEC didn't approve Google's registration statement, without giving a reason.

Google shares are expected to trade on the Nasdaq under the ticker symbol "GOOG."

Credit Suisse First Boston and Morgan Stanley are arranging the IPO.

Source: C-Net News

        

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