View Full Version : Google IPO means 'multiple billions'

07-05-04, 16:26
The 1,900 employees of Google could be forgiven for getting giddy over the company's plans to sell its stock to the public for the first time. Some of them are going to get very, very rich - at least on paper.

Even by conservative estimates, a Mercury News analysis shows the largest initial public stock offering in Silicon Valley history will create $US11 billion ($A15 billion) in paper profits for the search company's two founders, some investors and business partners and its employees.

The $11 billion ($A15 billion) estimate assumes the stock hits the market at $US40 ($A54.87) a share.

But it could be more. Way, way more.

If the stock sells for $US80 ($A109.75) - not a stretch, given that some are projecting even higher prices - the first-day paper profits could double to an estimated $US22 billion ($A30 billion).

"It's not just a billion, it's multiple billions," said Steve Cochrane, senior economist for Economy.com. "Psychologically, that's phenomenal."

Google's IPO stands apart from some of the most famous IPOs in valley history. For starters, it will raise a record $US2.7 billion ($A3.7 billion) for the company, topping the previous high of Agilent's $US2.2 billion ($A3 billion).

And the payoffs for Google's founders will be stunning compared with other celebrated IPOs. Netscape Communications co-founder Jim Clark's stake was worth $US272 million ($A373 million) after the first day of trading, and eBay founder Pierre Omidyar's stake was worth $US721 million ($A989 million). Google founders Sergey Brin and Larry Brin will become overnight billionaires.

Google hasn't set a date yet for its IPO, but observers say it's likely to come in the next several weeks to months.

Google's fortunate stakeholders won't necessarily be able to transform that money into Ferraris or Silicon Valley mansions the day the stock goes public. Google's founders have tried to discourage short-term investors.

The first wave of cashing in, if it happens, probably will come about six months after the IPO, when many employees will no longer will be bound by restrictions on selling their stock.

"The flood is going to hit in six months," said Tim Sparks, president of Compensia, a compensation-consulting firm.

But some will wait longer. The founders will retain the vast majority of their shares indefinitely. Top executives could be forbidden from selling, under government regulations, because they have insider information. And many Google employees must wait years until they actually vest their stock or options before they can cash in.

Still, it's likely to put a spring in the step of anyone who owns a stake in Google - or who hopes to sell something to them.

The estimates of paper profits from the Google offering are derived from details in financial documents submitted to the Securities and Exchange Commission last week. That shows the biggest stakes in the company are held by the founders, venture capitalists and early investors who own stock.

A smaller portion of the company is held by employees who hold or have exercised stock options, which give them the right to buy stock at a price that's likely to be far lower than the IPO price.

It's impossible to draw a complete picture because some information about stock and options issued during the company's early years wasn't included. But here's a taste of what's known to be at stake: -Although stock options for employees get more attention in Silicon Valley, the biggest profits will come from old-fashioned stock. There are more than 248 million shares of stock - two-thirds of which is in the hands of the founders, insiders, investors and preferred shareholders. That compares with 16.6 million options, many of which are held by the company's 1,900 current employees.

It's safe to assume that the stock was originally valued at no more than 50 US cents a share. That means the paper profits on Google stock would hit an estimated $US9.7 billion ($A13.3 billion) to $US19.6 billion ($A26.9 billion), depending on whether the stock sells for $US40 or $US80.

The paper profits on Google stock options would be a fraction of that: $US609 million with a $US40 IPO, and $US1.3 billion with an $US80 IPO.

-Google has put at least 14 per cent of the company in the hands of employees, former employees and non-employees such as consultants. That's comparable to the 19 per cent stake for high-tech firms before the bubble, according to a book, "In the Company of Owners," that examines the spread of options in the Internet industry.

But that 14 per cent could be an underestimate. Because the filings don't provide data back to Google's early days, it's impossible to determine who owns a 20 per cent stake not held by the founders, investors, insiders, business partners and workers. Most likely, however, employees and former employees own the majority of it, Sparks estimates.

As for the rest of us who don't have any, well, will there be envy?

"Some people are going to gain. You cheer for them in the same way you cheer for people who win the lottery," said Meir Statman, a finance professor at Santa Clara University. "But then you say, 'This could have been me, and it would have been even better."'

Sydney Morning Herald (http://www.smh.com.au/articles/2004/05/07/1083881462542.html)

tlr online
07-05-04, 16:27