CurrentOfferings.com Story:

Google IPO Could Boost Brokers

By David A. Vise, Washington Post, May 24, 2004

Google Inc.'s upcoming public offering of stock could produce a windfall of more than just fees for Wall Street. It could also bring the investment houses tens of thousands of new brokerage accounts as enthusiastic users of the search engine rush to get a piece of the action.

In a new filing with the Securities and Exchange Commission, Google has expanded the group of investment firms handling the $2.7 billion deal from two to 31. The list now includes a number of brokerages that cater to individuals, including Ameritrade Inc., E-Trade Securities LLC and Merrill Lynch & Co.

To participate in the offering -- which Google plans to conduct through a process called a Dutch auction -- investors first will be required to open accounts and put up funds at participating firms. Whether or not these investors end up with Google shares, the investment firms participating in the offering will rake in cash and sign up plenty of new customers, experts said.

"I do think this will be a big driver for Wall Street," said Tom Taulli, who owns the Web site currentofferings.com and has been receiving inquiries from eager investors who have never bought stock in an initial public offering before. "People contact us saying they want to put their life savings into this. That is a danger sign right there."

Investors are likely to have a few months to decide what to do. Richard Steinwurtzler, a Washington attorney who advises corporations going public, said the Google deal is unlikely to take place before late July, and may not occur until after Labor Day. The regulatory review process, which normally takes several months to complete for a new issuer, may take even longer in Google's case because of the novel auction method that the company intends to use.

Typically, Wall Street investment firms decide how to allocate shares in a public offering. In a Dutch auction, the shares are distributed based on how much bidders are willing to pay. Google plans to award shares to those who bid over a certain price, though it is unclear how the company will precisely arrive at that threshold.

Steinwurtzler said that the Securities and Exchange Commission will want to ensure that the auction system being proposed for distribution of Google shares works fluidly, is orderly and is well understood. He also predicted that the SEC will want to make sure that individuals participating in the deal understand the risks involved.

While hot new issues typically soar on the first day of trading, Google has warned that the auction method may lead the price of its stock to be set so high that it could drop once trading begins.

"I think the [SEC] staff will be intrigued. I don't think they will object to it," Steinwurtzler said of the Dutch auction method. "They will want the mechanics laid out, and it will have to be painstakingly commented on."

For all that has been written about Google and its offering since the company announced plans to go public on April 29, numerous questions about the stock offering remain unanswered, according to Scott Kessler, an analyst with Standard & Poor's Corp.

Kessler said it remains unclear exactly how the auction will work, what type of technology will be used to handle the bidding and how long the bidding will last. He said the inclusion of many firms catering to individual investors will help fulfill the company's promise to distribute shares on an "egalitarian" basis.

Kessler said the cross section of firms is unusually broad. The traditional firms catering to institutional investors and the wealthy are involved in the deal, with Allen & Co., Goldman Sachs Group, Lazard Freres Co. and Citigroup Global Markets Inc. among those joining the list of firms led by Morgan Stanley and Credit Suisse First Boston LLC. Then there are firms such as Piper Jaffray & Co. and WR Hambrecht & Co. that have expertise in handling new issues for technology companies, he said.

"They really tried to be as inclusive as possible," Kessler said. "That is very refreshing."

Kessler said that once regulators have blessed the structure of the deal, he anticipates that Google and the investment firms it has retained will publish some type of primer on how the stock auction will work. He anticipates that the auction could be open for days or weeks before a final price is set and the allocation of shares is determined.

Taulli said that given the hype surrounding the Google public offering, he is convinced many people will end up frustrated or upset about the price, the process or both. Instead of participating in the initial offering, he said patient investors might be well served to stay on the sidelines. Many current Google shareholders won't be allowed to sell their shares until six months after the company goes public, he said, but when those sales occur, it may dampen the stock price.

"Why jump into an investment when everyone else wants to get in?" Taulli asked. "The rational approach is to wait, but there is not a lot of rationality here."