Google IPO Auction Survives Playboy Article Threat

by Glen Shapiro, LawAndTax-News.com, New York

16 August 2004

Bidding for shares in Google's controversial IPO finally began on Friday after a roller-coaster week in which a Playboy interview given by its founders threatened to de-rail the IPO and negative publicity dampened investor interest in the high-priced stock.

Google said in an SEC filing earlier in the day it did not believe the Playboy article was a violation of the SEC's restrictions on IPOs, but added that if the interview was found to violate securities law, it could be forced to repurchase shares at the original purchase price for a year after the date of the violation. The SEC has chosen to remain silent on the interview.

The company also recently announced a legal settlement (with Yahoo) that will result in a third-quarter loss and had to disclose that management may have broken securities laws in 18 states by neglecting to register 33 million shares distributed to its employees. An investigation into this incident by the Californian authorities threatened to delay the IPO for a while.

The Californian company aims to sell 25.7 million shares at an estimated price range of $108 to $135 a share in a "Dutch auction" which will supposedly make the stock more widely available to average investors and bypasses professional investment houses ('underwriters') who are accused of creaming off profits from early price rises on deliberately under-priced stocks.

In fact it seems that Google's IPO has achieved the reverse of what was intended by requiring all prospective investors to register through 28 financial intermediaries (mostly brokerages) who have applied strict eligibility guidelines with the result that small investors have actually been excluded from the process. Still, it may yet be true that the reverse auction process will lead to more efficient market discovery than the conventional underwriter-led system. Google closed the registration process on Thursday, and the auction is expected to be closed out sometime this week.

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