Google In Unusual Stock Split

13 Apr, 2012

Google has announced an unusual stock split that will effectively hand founders Larry Page and Sergey Brin lifetime control of the search engine they invented as graduate students 16 years ago. The decision to cement control for what Mr Page called "the very long term" marks what corporate governance experts described as a first for a big public company in the US. It will also result in a new class of Google shares trading on Wall Street.

Under its first stock split in eight years as a public company, Google said it would issue a new share for each of its shares already outstanding. Such moves are normally welcomed on Wall Street, where a lower price per share is sometimes seen as an inducement for smaller investors to buy, though financial purists maintain it should have no impact on share prices.

In a departure from normal practice, Google's new shares will carry no voting rights, leaving control of the company "frozen" in the hands of holders of its existing shares. That is designed to leave Mr Page, 39, and Mr Brin, 38, with a firm grip on the nearly 58 per cent of the voting rights they control between them under a special class of shares.

The decision marks a lifetime extension of the controversial experiment in corporate governance that Google announced at the time of its initial public offering in 2004. It was immediately criticised by some governance experts, even though the move received formal approval from a group of the company's independent directors.

Charles Elson, a professor of corporate governance at the University of Delaware, said the founders had full authority over how Google is run: "The board is controlled by them ... Investors don't like it."

While admitting that Google's approach to corporate governance had been controversial at the time of its IPO, Mr Page said that with hindsight, "It was absolutely the right thing to do". Technology companies needed to be able to make longer-term investment decisions than are normally allowed given the short-term pressures on most public companies, he said.

"Investors have always taken a big bet on Sergey and me," Mr Page told analysts on a conference call on Thursday. "This bet will last longer as a result of these changes."

The news came as Google reported a stronger jump in earnings in its latest quarter than Wall Street had expected, calming some of the concerns left from the shortfall recorded in its previous quarter. However, it also reported a further sharp decline in the average prices of its advertising as it relies more on growth on mobile devices and in emerging markets, adding to unease that had spread among investors three months ago when it first revealed the trend.