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Google co-founders Sergey Brin, left, and Larry Page are seen at company
headquarters Thursday, Jan. 15, 2004, in Mountain View,
Calif.(Agencies) | Google Inc
spooked investors on Thursday
after disclosing it may have
illegally issued shares worth as much as $3.1 billion to current and
former employees, a week ahead of its hotly anticipated initial public
offering.
The admission was made in a
filing with the US Securities and Exchange Commission on Wednesday.
A source familiar with the offering said last Thursday afternoon that
the IPO, which was expected to happen as soon as next Tuesday or
Wednesday, was being delayed by about a week because it is taking
institutional investors longer to register to bid on the shares. The delay
is not due to the disclosure, said the source, who asked not to be
identified.
Google spokesman David Krane, who described the company's disclosure
and the offer to buy back the shares as a normal part of the IPO process, declined to comment on
the timing of an IPO.
Lead underwriters Credit
Suisse First Boston and Morgan Stanley also declined to comment on the
company's disclosure or the timing of the IPO.
Google plans to raise as much as $3.3 billion in its public offering.
But investors said the disclosure cast a pall on the IPO in an already gloomy
market in which Internet stocks have declined.
"It's hard to understand how that could be overlooked," said Mark
Herskovitz, manager of the Dreyfus Premier Technology Growth Fund. "The
deal was already controversial, and I'm sure it'll go through
OK, but this does not add to people's comfort levels."
Google said in the filing that 23.2 million shares it issued to 1,105
current and former employees and consultants between September 2001 and
June 2004 were not registered as required by law. It also granted an
additional 5.6 million stock
options to 301 people.
In the filing, Google offered to buy
back the shares and options for $25.9 million, including
interest at any price between 30 cents to $80. Google is expecting that
its shares will be valued at $108 to $135 at the IPO.
The so-called rescission offer is only good until the actual IPO when
the shares in question would be automatically registered with the SEC.
Holders of the securities could sell them or wait until they are
automatically registered, or sue the company rather than accept the
buyback, Google said.
"The rescission offer is not an unanticipated development," said Krane,
adding that the offer was first disclosed in an April registration
statement.
Google said it did not expect anyone to accept its offer given the
value of the shares would likely be well below the company's expected
share valuation of $108 to $135 at the IPO.
"As we have previously disclosed we do not believe that the rescission
offer will be accepted by our current and former employees and consultants
in an amount that would represent a material expenditure by us, given that
the weighted average purchase price of the stock and exercise price of the
option is only $2.86," Krane said.
One investor, who asked not to be named but who attended the roadshow, expressed little cause for
concern.
The investor pointed to Salesforce.com, which managed to complete a
highly successful IPO in June. That debut was delayed after its chief
executive gave an interview to the New York Times that may have violated
securities rules meant to prevent companies from hyping their stocks before an IPO.
"If Salesforce.com...went public with the legacy of issues that they've
had, then I doubt if this little thing is going to get in the way of
Google," said the investor, who was not planning on buying Google shares.
Yet other investors raised questions as to why Google had not disclosed
the rescission offer earlier.
Another investor, who also declined to be identified, said the latest
disclosure could spook investors who are afraid of last-minute disclosures
that could affect the outcome of the IPO.
The rescission offer will expire in September, Google said, without
specifying an exact date. Holders who reject or do not respond to the
offer will have their shares automatically registered after the IPO is
completed, it said.
Google said it may have broken federal securities laws and the
securities laws of 18 states and the District of Columbia by failing to
register the stock and options or exempt them from registration.
Google said the states whose securities laws may have been violated are
Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Maryland,
Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York,
North Carolina, Pennsylvania, Texas, Virginia and Washington.
The company's home state of California said that it would investigate
the latest disclosure from the company.
Google is using a "Dutch auction" process for the IPO, and bidders may
register at http:/www.ipo.google.com.
Google and its underwriters will
determine the highest price at which there is demand for all
shares, and price the shares at or below that price.
(Agencies) | 
Updated: 2004-08-06 11:05