Google to 'auction' shares

Web search provider Google Inc is set to sell its shares through an auction system, which, if successful, could change how Wall Street sells companies.

    The web search provider hopes to sell $2.7 billion of shares

    The California-based Mountain View company said in a governing filing it expects to sell as much as $2.7 billion of shares in an initial public offering.

    The company outlined a public auction system that aims to put small retail investors on a more equal footing with the big institutional funds and influential investors who have traditionally been given better access.

    "This is the first significant IPO with an auction structure and could create credibility for a whole new generation of IPO auctions," said Benjamin Howe, founding partner of America's Growth Capital, a Boston-based investment bank that underwrites IPOs.

    New method

    Google founders Larry Page and Sergey Brin have made it a priority to use a different sales process after witnessing the excesses of the late-1990s technology bubble and ensuing regulatory probes.

    Under the current system, investment banks take orders from investors, but ultimately use their own discretion to allocate and price shares.

    Some investors, however, are wondering if Google management is being too idealistic.

    Inherent risks

    One risk is that Google will not be able to protect against speculators, who could drive the offer price to unrealistic levels and then cause it to plummet in the aftermarket.

    Another risk is that the offer price will be too high. That could discourage big institutional funds, which are favoured under the current system, said John Coffee, a securities law professor at Columbia University.

    The Google management plans to price the new shares through an open bidding process.

    Investors would submit bids that include the price they are willing to pay and the number of shares.

    From those bids, Google plans to determine the highest price at which there is demand for all of the shares, called the clearing price. The offer price will be at or below the clearing price.

    The company said all investors who bid at or above the clearing price would be entitled to shares.

    SOURCE: Agencies


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