Google Announces Stock Split, Founders to Maintain Majority Control

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Google announced on Thursday a two-for-one stock split, a move the founders said was designed to keep them in charge of the company going forward. The move comes as Google reported revenue of US$10.65 billion, up 24 percent, and earnings of $2.89 billion, 61 percent. The company also has $49.3 billion in cash on hand.

Google’s plan is to issue existing shareholders a special dividend in the form of a new class of shares being created by the company. This is, effectively, a two-for-one stock split that will halve the price of individual shares, but the new class will be non-voting shares.

This means that Google will be free in the future to use its stock for acquisitions or other deals without diluting the existing ownership structure of the company. CEO Larry Page and President of Technology Sergey Brin, the company’s founders, each own 29 percent of the company, while Chairman Eric Schmidt owns another 10 percent. Messrs. Page and Brin alone own a controlling stake of 58 percent of the company, which means what they say goes.

Larry Page & Sergey Brin

Larry Page and Sergey Brin
Source: Google, Inc.

The founders were quite up front in saying that the new scheme was designed and is intended to maintain that structure, to keep them in control. While it is a highly unusual form of governance, the founders made no apology in a letter defending the action.

“We recognize that some people, particularly those who opposed this structure at the start, won’t support this change,” Messrs. Page and Brin said in a letter to shareholders published by BusinessInsider, “and we understand that other companies have been very successful with more traditional governance models.”

They added, “After careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users. Having the flexibility to use stock without diluting our structure will help ensure we are set up for success for decades to come.”

At the same time, the pair were quick to assure shareholders that, “we don’t have an unusually big acquisition planned, in case you were wondering.”

Shares in Google ended the day higher at $651.01, a gain of $15.05 (+2.37 percent), on heavy volume of 5.7 million shares trading hands.

Like Apple—whose stock ended the day at $622.77, down $3.43 (-0.55 percent), on moderate volume of 21.9 million shares trading hands—Google has been under some pressure to issue a stock split.

Apple declined to engage in a stock split, and instead announced a dividend and a stock buyback plan, effectively embracing it’s very high per-share price. While Google didn’t announce when the stock split will occur, it’s decision will halve the price of its shares.

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Comments

ibuck

While Google’s situation is different, this retention of power reminds me of Jim Balsillie and Mike Lazaridis at RIM.

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