Google This!

PUBLISHED: Apr 04 2014 @ 10:11 | Comments (0) | More info about Lou Gutheil

Following a pattern set recently by several other tech companies, Google (NASDAQ:GOOG) has made a play that is ingeniously designed to ensure that control of the company stays in the hands of co-founders Larry Page and Sergey Brin. Don’t have a stroke if you check the Google share price this morning to find that GOOG is trading at 560.00 when you were positive that the last time you checked, it was more like 1,200.00. That could have been just two days ago.

Here’s the deal. Now you have to add the share price of GOOG to the share price of GOOGL to get the total value. GOOG is now the new Class C stock issued by the company yesterday as a dividend to every holder of Class A and Class B shares. Class A shares (NASDAQ:GOOGL) are trading today near 565.00. Applying a bit of simple mathematics, we soon understand that the combined total is $1,125, just about where it should be when a company splits its stock.

But Google did NOT split its stock.

Well, maybe it did, and maybe it didn’t. What they did is similar to a split, but, technically, it is not a split. Each share is devalued by dilution, but, since each shareholder now has two shares for every single share they previously held, their total value theoretically remains the same. At least for a day.

The kicker is that the newly issued Class C shares have no voting rights. While others are debating the many facets of the deal, let’s look at it in its simplest terms.

It’s all about control.

Google’s Class B shares are owned exclusively by insiders, and primarily by Page and Brin.
Each Class B share has 10 votes.
All new shares issued will be Class C.
This slows, if not prevents, the erosion of the voting rights of holders of Class B shares.

The catalyst for the erosion of Class B control has been the issuance of Class A shares to finance acquisitions for an acquisition-hungry company. The more voting rights that are issued, the less control the co-founders have. And there you have the bane of taking a company public: the potential loss of control by the people who had the vision that drove the company in the first place.

Now Google can use Class C shares to acquire those attractive additions to the family. From my perspective, it is not only a clever idea, but one whose time has come. Traditionalists will not like it, but a chorus of praises is already wafting in the air from the thousands of entrepreneurs who took their companies public, only to eventually be kicked to the curb. No doubt, some of them should have been, but methinks not most of them.

The question for those who hold a stake in Google comes down to whether they are in it for the ROI or to RAC (Rip Away Control). We don’t often think about founders of wildly successful companies in emotional terms, but I suggest that we take the time to do just that in this case.

Two guys had a dream.
They made their dream come true.
Success caused them to dream bigger dreams.

Should they have to sacrifice their dreams on the altar of public financing? Should they lose just enough control to the point that they have to now argue every point to continue to achieve their dreams? Should they put themselves in a position to have money-grubbers dash their dreams and stomp on their hearts until they wallow in despair of having had a dream at all?

I think not. Bravo, Mr. Page! Bravo, Mr. Brin! Pursue your dreams!

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