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GOOG Prices Secondary – Is This a Pound of Flesh, Or Normal…?

By - September 14, 2005

Goog9.14GOOG had a bad day today, it closed down 8.68 points at 303. But after hours, Google announced it had priced its secondary offering at $295 (release below), another eight buck discount to its current price. Can any Wall St. mavens out there educate us as to why? Is this a trailing three month average, perhaps? Or a hedge to make sure the banks can do what they usually do, which is distribute underpriced shares to preferred clients, who make out on the “pop”? Google choose not to do an auction this time around, and auction pioneer WR Hambrecht is not a listed manager on the deal, as it was on the IPO.

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Google Inc. Prices Public Offering Of Class A Common Stock

MOUNTAIN VIEW, Calif. – September 14, 2005 – Google Inc. (NASDAQ:

GOOG) announced today the public offering of 14,159,265 shares of Class

A common stock, all of which are being sold by Google, at a price of

$295.00 per share. The underwriters have an option to purchase up to

600,000 additional shares of Class A common stock from Google solely to

cover over-allotments, if any.

The managing underwriters of the public offering are Morgan Stanley &

Co. Incorporated and Credit Suisse First Boston LLC, acting as joint

book-running managers, and Allen & Company LLC, Citigroup, JPMorgan,

Lehman Brothers, UBS Investment Bank, Thomas Weisel Partners LLC, and

Blaylock & Company, Inc., acting as co-managers.

A copy of the prospectus relating to this offering may be obtained

from: Morgan Stanley & Co. Incorporated, Prospectus Department, 1585

Broadway, New York, NY 10036 or Credit Suisse First Boston LLC,

Prospectus Department, One Madison Avenue, New York, NY 10010.

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8 thoughts on “GOOG Prices Secondary – Is This a Pound of Flesh, Or Normal…?

  1. John says:

    That is normal. The secondary offering is always priced below the market price. Oversimplified market way of thinking about it: the market is balanced with buyers and sellers at the current price. You are then adding $4 billion to the sell side of the market. It would make sense the price would have to decline to bring in buyers. Oversimplified cynical way of thinking about it, those inside wall street folks don’t have to pay what us regular folks have to pay. Well I missed out on the original offering, but did pick some up earlier this year way below the $295 price: I am happy with that purchase.

  2. Chris Sivori says:

    With a market cap of 85 billion and a P/E ratio of 88 isn’t anyone concerned that this stock is way overvalued? In the same industry, Yahoo has a market cap of 45 billion with a P/E of 31 making Google’s valuation about twice that of Yahoo’s. Does that make sense?

  3. MikeM says:

    Simply put Google is printing money. To think they never wanted to go public seems ludicrous doesn’t it?

    You never know with these things. The buyers could just as easily lend their shares to shorts, as is allowed in many secondaries.

    I was fortunate to get some GOOG shares at the initial offering and sold it awhile back. I will not buy the stock now.
    There are many smaller players in the sector currently unappreciated by the market worth taking a stab at.

  4. Trader Mike says:

    It’s a very normal occurence for all the reasons that John said above. I believe it’s referred to as pricing in the hole. You’ll be able to tell if it was a ‘good’ offering/pricing by where the stock trades the day after. Good ones will get a pop, and an immediate nice gain for those who bought the secondary, while the dogs will keep right on sinking deeper into ‘the hole’. 🙂

  5. michaelj says:

    MikeM – specifically which smaller players do you think are worth looking at?

  6. Kevin Laws says:

    Google actually did the same with their first offering, if you remember. They set the price 15% below what it would be if they did a “real” Dutch Auction, virtually guaranteeing a pop at launch.

    The problem is when you try to place that much new stock at once. Throw out “efficient markets” for a moment – when you have large chunks that have to go out in a short time, the market doesn’t absorb it and the price fluctuates quite a bit. This makes what may be a stable company look much riskier because of the fluctations, so companies try to avoid that.

    They do that by giving a premium to people willing to absorb large amounts of stock all at once, then leak it out over time so that it doesn’t disrupt the market so much.

    It’s fascintating that it turns out a premium is required by the market whether or not you go through the traditional investment bank private placement method.

  7. Vic says:

    Chris Sivori, your source seems to conveniently be, Well, Yahoo’s forward PE based on 2006 estimates is 45 (33.80/.74). Guess what, Google’s is 41 (303/7.33) AND Google is growing much faster than Yahoo. Now who is overpriced? Put that in your pipe and smoke it. Once Google opens their finance site, I’m sure things will look more “equitable”. I’d buy the stock before that happens.

  8. Ann says:

    “They set the price 15% below what it would be if they did a “real” Dutch Auction”

    What basis do you have for this claim? How did Google manage to give successful bidders about three-fourths of their orders if they were pricing that far below the clearing price? They’ve kept the clearing price secret, as with so many US IPO auctions, but it’s pretty unlikely that they were able to give everyone about 75% of their orders at $85, if the clearing price was really $100.

    Many countries have used ‘dirty Dutch’ auctions, where the issuer reserved the right to price below market-clearing. They’re just as real as other uniform price auctions, and they seem in practice to have worked better for IPOs than non-dirty “Dutch” auctions, where the price must be set at market clearing.