Taking its sale to the people
Are you ready for the people's IPO?
Google Inc., bucking tradition, yesterday outlined plans to sell its shares in an online auction that could give ordinary investors a chance to get in on the search company's initial public offering.
Would-be investors will have to open accounts with one of Google's lead underwriters, Credit Suisse First Boston or Morgan Stanley, which will set eligibility requirements. Those who meet them will be issued Google's prospectus and bidder identification numbers.
The process, sometimes known as a Dutch auction, is more common in France and Japan than in the United States. The issuer, in this case Google, establishes a price range for its shares, but investors are permitted to bid above or below the range. The company and its underwriters set the final price for all investors based on their evaluation of the bids, with bidders at or above the offering price receiving shares -- though not necessarily all they've requested.
"It's a bidding process, not that different from eBay," said Kent Womack, finance professor at Dartmouth's Tuck School of Business.
The auction differs from traditional "book-build" IPOs, in which underwriters put together a prospectus, draw big institutional investors to road shows, and build a book of interested buyers to set the price. In many of those cases, the big-block investors have profited at the expense of the issuers, while average investors have been shut out altogether until the IPO is over and shares are sold in the aftermarket.
Some critics think an auction is less an exercise in altruism than a way to push prices even higher for the issuers, including Google's founders, by drumming up excitement among the general public.
"To me, this smells of egos run amok at Google," said David Menlow, president of research firm IPOfinancial.com. "They know they have the hottest IPO of the decade. Everybody wants this stock."
If it works as intended, though, the auction might create a more stable stock price and discourage the kind of surge and plunge that dogged many IPOs during the Internet boom of the 1990s.
"With an auction, I think they're likely to get a higher price, and a more rational end-of-the-day market value," said Paul F. Deninger, chairman of Waltham financial firm Broadview Ventures.
Robert Weisman can be reached at weisman@globe.com. 