New Google Share Classes Issued as Founders Cement Grip
More than 330 million new shares of Google Inc. (GOOG) landed in the U.S. equity market today, completing a two-year process through which Sergey Brin and Larry Page are cementing control of the world’s third-biggest company.
Stock in the largest search-engine owner is effectively splitting via a dividend distribution, with the price of existing Google A shares, which hold one vote each, falling by about half.
Outstanding common shares in the Mountain View, California-based company more than doubled with the addition of non-voting C shares, which traded at $569.74 at 4 p.m. in New York. The shares sold at a discount of $1.76, or 0.3 percent, to the A shares, which closed at $571.50.
Nasdaq OMX Group Inc. (NDAQ), operator of the Nasdaq Stock Market where Google shares are listed, is adding the Class C shares to its indexes under the “GOOG” symbol. Class A shares will be renamed “GOOGL” and subsequently removed from indexes when the exchange operator rebalances them on June 23.
“In a perfect world, you’d rather all shareholders be treated the same, but they have the right to do this, and we have the right to hold or sell our shares in response,” Ryan Jacob, manager of the Jacob Internet Fund, which counts Google among its top holdings, said in an interview in New York. “I can’t say I’m thrilled about it, but it’s not going to make me sell the shares. Once this takes effect, Google will be just as good an investment as it was yesterday.”
By introducing non-voting shares, Page and Brin will be able to issue stock to compensate workers or make acquisitions without diluting their voting stake.
The founders control 56 percent of the vote through their B shares, which don’t trade publicly and carry 10 votes each, according to the company’s March 28 proxy filing. Executive Chairman Eric Schmidt owns 8.2 percent of the B shares, while Brin and Page hold 84 percent combined.
Tim Drinan, spokesman for Google, declined to comment beyond earlier statements by the company on the matter.
S&P Dow Jones Indices LLC will allow both share classes to trade on the benchmark Standard & Poor’s 500 Index (SPX), resulting in 501 listings in the gauge. The index operator will introduce multiclass listings across all of its U.S. indexes beginning September 2015.
Shares of dual-class equities usually trade at different prices in the U.S. Discovery Communications Inc. (DISCA)’s Class A voting shares closed yesterday at $84.20 while the non-voting C shares cost $78.72, a 6.5 percent discount.
Investors expect Google’s two classes to trade with little spread to each other. The company agreed to an unusual arrangement as part of a settlement with disgruntled investors in October in which it will reimburse holders of the Class C shares should they fail to keep up with the existing A stock.
Page and Brin are barred from selling C shares unless they sell an equal number of Class B shares. They need approval from independent directors to get around the restriction.
“Eventually they’ll trade in line,” said Michael Binger, a portfolio manager at Gradient Investments LLC in Arden Hills, Minnesota, who helps oversee $450 million. “A dollar on a $700 stock, that’s just kind of the bid-offer rounding error.”
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