Google is preparing to split their stock for the first time on April 2nd. Around three years ago, Google co-founders Larry Page and Sergey Brin started to discuss a way to make sure that they remain in control of the company. The split was delayed because of resistance from Google’s shareholders. The shareholders did not like the idea of Page and Brin benefitting of this plan over everyone else.
Google’s founders believed that they would lose more control of the company as they create more shares to compensate employees and buy startups. To push forward for the split, Google settled a shareholder lawsuit and agreed to pay up to $7.5 billion if the split does not happen in the way that the company envisions.
The Google split would create a new class of “C” stock that does not carrying voting power. One C share stock will be distributed for each share of voting Class A stock that is owned as of March 27th. The value of the current stock will divided equally between the two share types initially. It will start to trade separately with different ticket symbols after that. The Class C shares will get the “GOOG” ticker symbol and the Class A will be changed to “GOOGL.”
Google co-founders Larry Page and Sergey Brin own Google’s Class B stock, which has over 10 times the voting power of each Class A share. Google’s founders control 56% of the shareholder votes even though they own less than 15% of the stock that was issued. However, Google’s Class A stock was used for rewarding employees and financial acquisitions so Page and Brin’s voting power has shrunk. Google will be able to continue rewarding employees with stock by creating a new class of non-voting stock without giving away their own voting power.
If everything goes according to plan, Google’s stock price would drop to around half while retaining their market value of around $380 billion because there would be around double the number of shares that are issued. Some of Google’s shareholders believe that the non-voting status of the Class C stock will cause those shares to trade at significant discounts to the Class A stock though. This is why a class-action lawsuit was filed at a Delaware chancery court in April 2012. Google decided to postpone the stock split until the lawsuit was resolved. Google made a settlement and the court approval happened 3 months ago.
Google will be required to pay the Class C shareholders if the average price of their stock is at least 1% below the Class A shares during the first year after the split. The size of the payments will increase if the gap increases. The maximum payout required is the gap between the average prices of the Class C and Class A shares is 5% or more.
[Source: Mercury News]