Problems cloud Google IPO
Reported delay raises concerns on timing of sale
The initial public offering of Google Inc. was supposed to reignite the IPO market and stir fresh demand for technology stocks.
Instead, the tumbling markets and a raft of other speed bumps, including a backlash against Google's unorthodox share auction and its steep projected sales price of $108 to $135 a share, threaten to subdue the Web search king's estimated $3 billion offering.
Bidding for Google shares was expected to begin as early as Monday, and trading of the stock on the Nasdaq Stock Market by the end of next week, but the Silicon Valley company has reportedly delayed the process because of logistical problems relating to its auction.
The delay, which may amount to only a few days, has nonetheless raised questions about the timing of Google's stock sale. Google's closely watched initial public offering is now likely to take place in the dog days of summer amid a struggling stock market, a slowing economic recovery, and a new wave of terror jitters. None of this had been anticipated when Google registered for its debut on April 29 with the Securities and Exchange Commission. The economy looked to be strengthening then, and the long-stalled IPO market picking up.
But two planned IPOs, by nanotechnology bellwether Nanosys Inc. and medical equipment company Empi Inc., were called off Thursday because of adverse market conditions. And yesterday's Labor Department report that the US economy added 32,000 jobs in July, the slowest growth of the year, sent the stock markets plunging to lows for the year. The Dow Jones industrial average dropped 147.70 points, or 1.48 percent, to close at 9,815.33, while the tech-heavy Nasdaq Composite index lost 44.74 points, or 2.46 percent, to close at 1,776.89, sinking below the 1,800 level for the first time since October.
''If the market continues to be crummy for another week or so, I could see Google postponing its offering," said John Dorfman, president of Dorfman Investments, a money management firm in Newton. ''But unless it gets a lot worse, they'd be well advised to go ahead. Because if they wait for too long, there could be other imponderables -- a terror attack, interest rate hikes -- coming later in the year."
Google spokeswoman Cindy McCaffrey said the Mountain View, Calif., company wouldn't discuss its timetable for the offering. Timing isn't the only problem dogging Google, which could be rewarded with a market value as high as $36 billion if it successfully sells 24.6 million shares in its projected price range. In a Wednesday filing with the SEC, the company said it may have issued to employees and others unregistered stock options worth a potential $3.1 billion after the IPO. Google offered to buy back the shares for a fraction of that sum. California and Connecticut regulators yesterday opened inquiries into whether Google violated state security laws in issuing the shares. Brian McNiff, a spokesman for Massachusetts Secretary of State William Galvin, said Massachusetts has not begun a Goggle inquiry.
And in a July 26 filing, Google disclosed that its general counsel, David C. Drummond, had been advised by the SEC's Boston office that he faces potential civil fraud charges. The probe doesn't involve Google but relates to Drummond's previous job as chief financial officer of an e-learning company called SmartForce PLC. The firm's New Hampshire acquirer restated three and a half years of financial data, much of it prepared under Drummond's stewardship.
But the biggest issue for Google may be the sour reaction of investors to the hefty price range and unconventional auction format in the forthcoming IPO, led by the Morgan Stanley and Credit Suisse First Boston investment banks. The format, designed to fetch the highest possible price for Google by limiting the first-day ''pop" in its share price on the aftermarket, has alienated institutional investors.
''Google is a very strong company, but I don't like the auction style they're utilizing," said Bob Davis, a venture partner at Highland Capital Partners in Lexington and the former chief executive of search company Lycos Inc.
Davis said Google's brand and balance sheet may be strong enough to guarantee a successful IPO despite the timing issues because ''they're in the rarefied air of the story-and-glory stocks that people want to buy." But he questioned how much forward momentum Google shares will have after they begin trading.
Robert Weisman can be reached at weisman@globe.com. 