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August 6, 2004

Google Gets Too Cute with Wall Street
We anticipated some backlash to the Google IPO, given the company’s abrasive approach to Wall Street, but Sergey and Larry are really starting to show their amateur colors. The IPO will undoubtedly come off, but all this brash cleverness is starting to annoy people.
As we see it, there are really three issues at play. The unprecedented Dutch auction that Google set up is having the effect of turning off investors, but Google anticipated and wanted this. They didn’t want a frenzy of up-bidding where they would go out at, say, $25 per share and find the stock at over $100 a week later, leaving all that cash on the table. It’s a bold move, but still the auction has provoked bad publicity.
Larry & Sergey: Get it, we’re breakin Wall Street’s rules

What’s worse is that Google would not allow investment bankers to participate if they did not agree to refrain from their normal due diligence process. Who knows what investment bankers would have found, but The Street resents the fact that Google got special treatment.
And now there is news that Google’s legal team and management were too aggressive in their management of the SEC. The issue is complex and we have not yet seen the press explain the story well. But, in short, companies are required by the SEC to file documents when they have more than 500 employees and $10M in revenues. They essentially need to act like public companies. Google put off this filing and now the SEC is calling them on it, indicating that Google may have illegally sold 23M shares. Based on precedent, Google anticipated that the SEC would have granted them relief, but some $80K-a-year SEC attorney wrote back – “we will not listen to any more comments on this question.”
Google must now get in touch with all of these shareholders, including option holding employees and contractors, and offer to buy back this stock at the strike price. However, shareholders would be foolish to sell the shares back at that low price and are bound to tell their bosses to go pound sand or even to sue. We hear that there are waves of meetings on the Google campus where hundreds of employees, who are not SEC-savvy, are trying to understand if they are being screwed by their company or – if they try to screw their company – are they just screwing themselves. Apply the ear-muffs to the f-bombs if you are in Mountain View this week.
We have also heard that the investment bankers who are taking Google out say that the press is not overplaying the negativity around the deal. It’s as ugly on the inside as it seems on the outside.
If we had to bet who is taking it in the shorts for this crazy mess, we would say that it’s Google’s corporate counsel, Wilson Sonsini. If indeed Wilson recommended Google’s aggressive stance to the SEC, we imaging that they are having to pick up the multi-million dollar tab to fix the embroglio.
Venturing into conspiracy theories, we have already heard whisperings that the investment banks were so mortified by (a) the snubbing they received via Google’s IPO process and (b) the precedent it would set for future IPOs – that they have relished the latest bit of mud-throwing. This way, the next Google will not be tempted to re-try this stunt. Please let the a:c know if you have the Zapruder film on this one.
The lesson from the Google IPO ordeal, as well as’s bungled IPO, is that companies need to hold their noses and heed investment bankers. They may begrudge the fact that bankers are making so much from doing so little, but this is a one-time service charge. Google and Salesforce will suffer the rap of not being able to manage a simple IPO for some time.
Read: Google IPO No Longer a Sure Thing? [CNET]
Read – Google May Have Illegally Sold Shares [Silicon]


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