August 23, 2004

Google's IPO got a little larger on Friday, when its lead investment bankers cashed in an option to buy 2.94 million more shares.

The additional Google shares were sold to the firm's lead investment bankers, Morgan Stanley and Credit Suisse First Boston, at their IPO price of $85, according to a person familiar with the transaction. The banks can now resell the stock, which last traded at $108.31, for millions of dollars in profit.

This so-called over-allotment option increases the size of Google's IPO, largely completed earlier this week, by $250 million, to $1.92 billion.

Google didn't directly profit in the sale. The proceeds go to some of the search engine's insiders and early investors, who owned the shares.

"It's a reward for the investment bankers," said Peter Sealey, an adjunct marketing professor at UC Berkeley.

The over-allotment option is a fairly typical arrangement between firms going public and the banks underwriting the offering.

Also called the Green Shoe, for the company that first used it, it allows the banks to buy additional shares from the company after the IPO -- usually 15 percent of the total.

Since Google and its insiders sold 19.6 million shares, Morgan Stanley and Credit Suisse First Boston had the option to buy 2.94 million additional shares at the IPO price.

When the stock goes up, it gives the bankers a way to boost their profit.

Both banks, having bought the shares from Google at $85, are now free to sell them on the open market for much more.

If Google's stock had fallen, the banks would still have had to buy the stock, but on the open market. Such transactions help to prop up the share price.

Among the Google insiders who sold shares in the deal were K. Ram Shriram, a Google director, who sold 125,000 shares; Andy Bechtolsheim, a co-founder of Sun Microsystems, who sold 90,352 shares; David Cheriton, a Stanford professor, who sold 340,436 shares. America Online sold 1,427,607 shares, Yahoo Inc. sold 709,018 shares, and entities affiliated with Angel Investors, an investment fund, sold 127,804 shares.

All those who sold shares in the over-allotment had also sold some of their stock in the traditional IPO. A Google spokesman declined comment.

Meanwhile, Google's employees and their families spent Friday at the company's annual picnic at Charleston Park in Mountain View. As is usual at the company's parties, this one was elaborate.

One area had an Asian theme, highlighted by an inflatable dragon with a playground slide, lanterns and a woman dressed as a geisha. An area dedicated to Polish culture included polka bands, dancers and sausages.

Security was tight at the event, in keeping with Google's new, increased profile. Reporters were kept at bay by security guards, police and a temporary fence. Employees walking on the perimeter declined comment.

In other news, Google's stock finished its second day of trading on Friday up $7.98 at $108.31, or nearly 8 percent. That's on top of the 18 percent increase a day earlier, when the shares premiered on Nasdaq.

The run-up restored some luster to an IPO that was greeted with tepid investor demand and criticism over potential securities law violations.

Analysts are now looking to Google's future stock performance. Several have initiated coverage over the past two days, but they offer conflicting advice.

One report, by Mark Mahaney of American Technology Research, rated Google as a "hold," saying that the stock is fairly valued at $110. Another, from John Tinker, of ThinkEquity Partners, called Google a "buy" and placed a price target of $120 on its shares.

Source: SF Gate.com

        

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