The Google IPO

            
 
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Case Details:

Price:

Case Code : FINC037 For delivery in electronic format: Rs. 400;
For delivery through courier (within India): Rs. 400 + Rs. 25 for Shipping & Handling Charges

Themes

IPO
Case Length : 14 Pages
Period : 1985 - 2004
Pub. Date : 2004
Teaching Note : Available
Organization : Google
Industry : Internet Search
Countries : Global

Abstract:

Google went public on August 19, 2004, using the "Dutch Auction" method. Ever since the announcement on the IPO was made in April 2004, the IPO became mired in some controversy or other. On the one hand, it was a much-awaited IPO -- most IPOs had not performed well in 2004, so investors were eagerly looking forward to the Google IPO as Google was a highly profitable company. On the other hand, most investment bankers had expressed their concerns about the IPO and had declared it to be a failure even before its launch. Many bankers said that though Google was profitable at that point, it would not remain so for very long because its competitors - Yahoo and Microsoft -- were gaining fast on it.

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Google's dual share system also came in for criticism. This system, considered antiquated, was described by most investors as unfair. Just a week before the launch of the IPO, Google's founders, Sergey Brin and Larry Page violated the rules of the Securities and Exchange Commission by breaking the "quiet period". Another violation that SEC discovered was Google's failure to report the shares that it had issued to its employees and consultants in the period September 2001 and July 2004.

These issues heightened the controversies surrounding the IPO. Unnerved by these controversies, Brin and Page declared just a day before the launch, that the price of shares had been reduced to $85 and $95. The number of shares available was also cut down. However, all these controversies notwithstanding, the Google IPO performed exceedingly well. It helped the company to collect $1.4 billion, and put Google's valuation at nearly $30 billion. The success of the IPO effectively silenced all its detractors.

Issues:

The "Dutch Auction" method of launching an IPO

The difference betweeen the conventional IPO launch and the "Dutch Auction" launch and the advantages and drawbacks of both the systems

The behavior of investors and investment bankers before the launch of an IPO

The features of the IPO that are generally under the scrutiny of investors

How controversies before an IPO launch can be harmful to a company

The nature and mechanism of Google's working and operations

Contents:

  Page No.
Introduction 1
Background Note 2
"Dutch Auction": An Unconventional Mode of IPO Launch 4
All's Well That Ends Well 9
Exhibits 10

Keywords:

Google, Initial Public Offering (IPO), Netscape, "Dutch Auction", Larry Page, Sergey Brin, Search engine, AOL, Ask Jeeves, Froogle, Investment Banks, Credit Suisse First Boston (CSFB), Morgan Stanley, Dual share structure and Technology IPOs

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