Google Settles A Lawsuit Over The Common Stock Split

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Google has settled a lawsuit regarding a stock split plan.  Shareholders are claiming that Google co-founders Larry Page and Sergey Brin are unfairly strengthening their corporate control through the stock split.

Lawyers that are representing a Massachusetts pension fund and several other investors are scheduled to begin presenting their testimony tomorrow in a Delaware court about a stock reclassification that would create a new class of non-voting shares according to court filings.  The settlement has to be approved by the judge and it would clear the way for the split.  The split has been on hold while the case in Delaware is being litigated.

Page and Brin requested to amend restrictions on their sales of new Class C shares and regarding company acquisitions that are funded by over 10 million shares of the new stock according to court filings.  Google’s search and video businesses generated around $8.64 billion in revenues last quarter, which is up 18% from one year earlier.

Google spokesman Matt Kallman said that they are pleased that a settlement was made in the Delaware case regarding the stock reclassification.  “We’ve always believed our founder-led approach gives us the freedom to make long-term bets” stated Kallman in an interview with Bloomberg.

Google said that the new shares were created to increase the company’s flexibility for making acquisitions and to reward employees while letting Page and Brin maintain the control of the company.  Through Google’s existing stock structure, their Class A common shares carry one vote while Class B shares carry 10 votes.   Page and Brin have Class B shares that carry around 56% of the company voting rights.  The two of them own around 15% of Google’s outstanding equity.

With the new plan, Google wants to create Class C shares.  Class C shares do not have voting rights.  According to filings, all investors will receive a dividend in the form of Class C shares through a 2-for-1 stock split.

The Brockton, Massachusetts Retirement Board believes that the Google directors made an error when backing the reclassification plan because it would let Page and Brin make millions from the stock sales without effecting their voting control.  The Massachusetts pension fund owns around $500,000 in Google shares.

The pension fund said that Google’s common shareholders would face dilution of their holdings after issuing additional stock for acquisitions or employee compensation.  Class C shares will likely trade at a discount to Class A shares because of the loss of voting rights.  According to the board’s attorneys, directors addressed the concerns by structuring the reclassification that bars Page and Brin from selling Class C shares unless they sell an equal number of Class B super-voting shares.

The settlement from this week will require Page or Brin to receive approval by Google’s independent directors and board of directors to request a waiver of the Class C sale restrictions.

“In the event that Google considers using in excess of 10 million shares of Class C stock as consideration for an acquisition, the independent members of the board shall consider the effects on using such shares on Class A shareholders and the company,” states the filing.

This lawsuit was filed under: In re Google Inc. Class C Shareholder Litigation, CA No. 7469, Delaware Chancery Court (Wilmington). 

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