Google IPO

[Hooper]

Google Said to Consider Online Auction of I.P.O. Shares

October 24, 2003
By RICHARD WATERS, FT.com

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 $15bn.

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.

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.

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.

http://www.nytimes.com/financialtimes/busi...c25454cf8dcb697