CurrentOfferings.com Story:

Google considers diverse IPO methods

USA Today, January 27, 2004

PALO ALTO, Calif. (AP) � Google's initial public offering could go a long way toward furthering the cause of Internet auctions of new stock.

Google, the Mountain View, Calif., search-engine giant, hasn't yet formally filed to go public. Yet, it's widely believed that its initial public offering will contain some way to let investors bid for shares via a Dutch auction, akin to the OpenIPO bidding process now used by West Coast investment bank W.R. Hambrecht & Co. In a Dutch auction, the price of the stock is set high and gradually lowered until matching bids are received.

People familiar with the company say Google has been looking at combining an online auction with the more traditional distribution of stock through Wall Street underwriters.

IPO experts say the mixing of the two methods could give Google a stronger hand in negotiating with Wall Street banks. It also could secure a higher offering price when the shares do reach the market, and that could put more money directly into Google's pockets.

It would also increase the access to retail investors, who often don't get a chance to snap up shares in the hottest IPOs. They may come to expect easier auction access to other new offerings.

In short, Google's planned IPO, without question one of the year's most widely anticipated financial events, could raise the profile of auctions as a means for selling IPOs to the public and prompt "a very big change in the marketplace," says Tom Taulli, co-founder of CurrentOfferings. "It will stick in the minds of investors."

By all accounts, there's already strong demand for Google shares even before a single offering paper has been filed. The 6-year-old company has been profitable for a couple of years, owns a commanding share of the U.S. Internet search market, with 35% of searches done at its site, and has accumulated a hoard of admirers on Wall Street.

Given these high expectations, the company's use of an auction and a traditional underwriter will prove an interesting test of the technique. First off, Google would be the largest company ever to employ such a combination, with its total deal targeted at between $3 billion and $5 billion.

"It certainly would make a statement," says Paul Bard, an analyst at Renaissance Capital. The market could "definitely see more companies interested in that kind of approach."

Google wouldn't be the first to blend an auction with a tradition stock offering. In May 2001, Instinet Group set aside 2.4 million of the 12.2 million shares it was selling in an IPO to offer through W.R. Hambrecht through a Dutch auction.

Many IPO market watchers say a successful debut by Google could help open the gates for young companies that have weathered the downturn. About 50 companies with solid financial footing could follow Google if the IPO turns out well, says Eric Hahn, an investing partner at the Inventures Group, a Silicon Valley investment firm.

However, Google will set an imposing high water mark for the sales and profitability these companies might be required to show. Estimates of Google's 2003 sales vary widely, from just under $600 million to nearly $1 billion.

Safa Rashtchy, a senior research analyst at Piper Jaffray, suggests the higher number is more accurate. He calculates that Google booked revenue of between $900 million and $1 billion last year, and he bases his work on the rapidly growing Internet search advertising market.

The U.S. market expanded 83% in 2003 to $2.3 billion and will grow another 44% in 2004, says Rashtchy. The overseas market is smaller, probably only $500 million in size in 2003.

Others with knowledge of the company say its fourth-quarter sales were close to $250 million, meaning that the projected "run-rate" of the business is presently $1 billion.

Either way, Wall Street will be watching.

"This is the first really hot company to go public in a long, long time," says Douglas Whitman, president of Whitman Capital. "Wall Street wants to see how big the euphoria can be around this."