4 ms·

Google share split is naked power grab

21 points by larrys 15y ago

Zikes 15y ago
So, the founders of the company want to make sure they maintain control over it? Why is this evil again?
- VengefulCynic 15y ago
  They're essentially reducing the value of the shares of stock. Each share of Google stock has a value as a portion of the overall company and also includes the right to vote in board elections and exercise voting rights on any measure put to shareholders. To simplify, let's say I own 10% of Google, what this stock split does is leave me with a 10% ownership stake in Google, but only in possession of 5% of the voting rights in a board election - effectively taking away half of my oversight of the company by fiat.
  - evgen 15y ago
    Sounds like you should sell your GOOG shares then if you think this is a problem. Yes, it is about maintaining power for the current cabal running the company but they are being very open about this fact. If the value of the shares will truly be diminished by the loss of voting rights then I expect the market price of those shares to reflect this and now would be a good time to sell.
    - asdfdsa1234 15y ago
      GOOG is down about 4% today.
  - AnthonyMouse 15y ago
    >To simplify, let's say I own 10% of Google, what this stock split does is leave me with a 10% ownership stake in Google, but only in possession of 5% of the voting rights in a board election - effectively taking away half of my oversight of the company by fiat. That doesn't appear to be the case at all. If you currently own 10% of the voting shares of Google, on the day of the stock split, you will still own 10% of the voting shares -- the same shares, in fact. But you'll also now own ~10% of a new class of non-voting shares. Heck, if you wanted to, you could sell your new non-voting shares and use the money to buy voting shares, and end up with an even larger percentage of the voting shares than you had before. It's just that you can't -- and couldn't have even before this -- acquire a majority of the votes, because they remain in the hands of the founders, who aren't selling.
  - bigtech 15y ago
    Wrong. If you owned 10% your voting power: 100% - big shots share: 37.6 + directors share: 61.4% == 1%. So your 10% share = .1% voting power. They said as much in the IPO: >> New investors will fully share in Google's long term economic future but will have little ability to influence its strategic decisions through their voting rights.
- anon808 15y ago
  because they've sold a large chunk of their equity for cash in the marketplace . . . but of course everyone wants to have their cake and eat it too.
SatvikBeri 15y ago
It certainly is a power grab, but that doesn't necessarily make it evil. Evil would be deceptively creating some sort of financial instrument and masking the fact that outside Shareholders will lose voting power. But creating new shares which have no voting rights is a common move, and it seems like Google is being pretty open about it.
- sp332 15y ago
  It's tyranny of the majority shareholders. If you own 49% of Google's stock, you don't have 49% of the power. You have 0 power because whatever Larry and Sergey says, goes.
  - SatvikBeri 15y ago
    You're correct, and the reason I say this particular tyranny of the majority is not evil is because Google has always explicitly stated that they never intend to let their outside shareholders have any power over corporate decisions. Same with Facebook...in fact, these companies have basically stated that if they weren't legally required to have an IPO, they wouldn't. If Google had ever claimed that they would listen to outside shareholders, or even if they hadn't gone out of their way to state that they wouldn't, then the power grab would be deceptive and evil.
    - helmut_hed 15y ago
      Google and Facebook were/are "legally required" to have IPOs? I believe they are only required to release financial statements. Even if that were true, though, claiming this is their sole reason to IPO strikes me as disingenuous, given the improvement in liquidity it provided/will provide for the fortunes of the company's insiders. Surely that played a significant role in their decision-making.
      - deleted 15y ago
        [deleted]
      - SatvikBeri 15y ago
asdfdsa1234 15y ago
Moves like this that consolidate power in the hands of large shareholders have precedent. From what I've read, small shareholders tend to be poorly treated under such arrangements, or so they claim. On the other hand, I like the out-there projects. I want them to create self-driving cars, re-usable space vehicles, strong AI, nanobots, and the rest, and as a shareholder I don't mind losing some profit to take that chance. However, this assumes power isn't abused over time, and without checks in place, one has to worry a bit.
aneth 15y ago
It's not a power grab so much as maintaining their current power. Without this provision, the stock split would result in the founders' voting power being cut in half, in which case they would of course elect not to split the stock. If I misunderstand, please correct me. As I see it, instead of splitting 10x voting stock held by the founders, they are issuing non-voting stock to everyone. I'm curious to know how they will differentiate between voting and non-voting common shares in the stock market - it seems one is worth at least marginally more than the other.
- asdfdsa1234 15y ago
  If the stock is split, the founders' stock will also be split, and their share of the whole will remain constant (assuming there is only one class of stock in existence). Listed companies have different tickers for each class of shares.
- aneth 15y ago
  My understanding was that this was to avoid issuing more founders shares. I was wrong. It is indeed a powers grab.
deleted 15y ago
[deleted]
Steko 15y ago
Felix Salmon has a much better write up of why it's bad: http://blogs.reuters.com/felix-salmon/2012/04/13/googles-evil-stock-split/ http://blogs.reuters.com/felix-salmon/2012/04/13/googles-evi... Quoting at length: Dual-class voting shares were illegal for most of the 20th Century, but came back in 1986. James Sterngold’s NYT story on their reintroduction is well worth a read, featuring as it does comments against the new rules from both Felix Rohatyn (”The one-share, one-vote rule is pretty fundamental to the market”) and T Boone Pickens (”Let’s face it, managements want this because they want to entrench themselves. They went to Congress to get protection and they didn’t get it. So they went to the exchange to get protection, and they got it.”) Even then, however, there were safeguards, including the crucial one that a majority of independent shareholders — excluding management and some directors — had to approve the move... Google has, now, clearly violated the spirit of the NYSE rules, if not their letter. It took 15 months for the independent directors on the board to be persuaded of this, in long and secret deliberations
- anamax 15y ago
  > Dual-class voting shares were illegal for most of the 20th Century, but came back in 1986. According to http://www.investopedia.com/articles/fundamental/04/092204.asp#axzz1rxM5WWdB http://www.investopedia.com/articles/fundamental/04/092204.a... , Ford has dual-class and I'm pretty sure that it has had it long before 1986. Of course, Ford may have had dual-class before the "most of the 20th century" rules were written and may have been grandfathered. FWIW, Berkshire-Hathaway (buffet's toy) has dual-class stock.
ralfd 15y ago
The NYTimes explained it differently. A shareholders voting right won't be cut in half. http://www.nytimes.com/2012/04/12/business/whats-up-with-googles-plan-to-split-its-stock.html http://www.nytimes.com/2012/04/12/business/whats-up-with-goo... > Investors typically have Class A stock now. They will be given an equal number of Class C shares, which won’t have any voting power. The value of the Class A stock will be split between the two, so if the stock is trading at $600 when it happens, a Class A share will be worth $300 and a Class C share will be worth $300. Investors will have twice the number of shares they held before, but the total voting power and stock value won’t change. So if Bob owns 100 shares worth $600 each, he will own 200 shares worth $300 each. Bob will still have 100 votes, and the value of all his shares will still be $60,000. What I don't get is why one shouldn't immediately sell non-voting C-shares and buy voting-power A-shares back. Or only buy A-shares. Normally non-voting shares will be compensated by a bigger dividend. But Google doesn't pay a dividend (yet)?
- sp332 15y ago
  I think there's some information missing. Voting shares are always worth more than non-voting shares, for exactly the reason you mentioned.
cpeterso 15y ago
Will the price of new Class C shares (with a new ticker symbol) float independent of GOOG stock price? It will be interesting to watch the price difference between the shares.

21 points by larrys 15y ago

Zikes 15y ago

So, the founders of the company want to make sure they maintain control over it? Why is this evil again?

VengefulCynic 15y ago
They're essentially reducing the value of the shares of stock. Each share of Google stock has a value as a portion of the overall company and also includes the right to vote in board elections and exercise voting rights on any measure put to shareholders. To simplify, let's say I own 10% of Google, what this stock split does is leave me with a 10% ownership stake in Google, but only in possession of 5% of the voting rights in a board election - effectively taking away half of my oversight of the company by fiat.
- evgen 15y ago
  Sounds like you should sell your GOOG shares then if you think this is a problem. Yes, it is about maintaining power for the current cabal running the company but they are being very open about this fact. If the value of the shares will truly be diminished by the loss of voting rights then I expect the market price of those shares to reflect this and now would be a good time to sell.
  - asdfdsa1234 15y ago
    GOOG is down about 4% today.
- AnthonyMouse 15y ago
  >To simplify, let's say I own 10% of Google, what this stock split does is leave me with a 10% ownership stake in Google, but only in possession of 5% of the voting rights in a board election - effectively taking away half of my oversight of the company by fiat. That doesn't appear to be the case at all. If you currently own 10% of the voting shares of Google, on the day of the stock split, you will still own 10% of the voting shares -- the same shares, in fact. But you'll also now own ~10% of a new class of non-voting shares. Heck, if you wanted to, you could sell your new non-voting shares and use the money to buy voting shares, and end up with an even larger percentage of the voting shares than you had before. It's just that you can't -- and couldn't have even before this -- acquire a majority of the votes, because they remain in the hands of the founders, who aren't selling.
- bigtech 15y ago
  Wrong. If you owned 10% your voting power: 100% - big shots share: 37.6 + directors share: 61.4% == 1%. So your 10% share = .1% voting power. They said as much in the IPO: >> New investors will fully share in Google's long term economic future but will have little ability to influence its strategic decisions through their voting rights.
anon808 15y ago
because they've sold a large chunk of their equity for cash in the marketplace . . . but of course everyone wants to have their cake and eat it too.

SatvikBeri 15y ago

It certainly is a power grab, but that doesn't necessarily make it evil. Evil would be deceptively creating some sort of financial instrument and masking the fact that outside Shareholders will lose voting power. But creating new shares which have no voting rights is a common move, and it seems like Google is being pretty open about it.

sp332 15y ago
It's tyranny of the majority shareholders. If you own 49% of Google's stock, you don't have 49% of the power. You have 0 power because whatever Larry and Sergey says, goes.
- SatvikBeri 15y ago
  You're correct, and the reason I say this particular tyranny of the majority is not evil is because Google has always explicitly stated that they never intend to let their outside shareholders have any power over corporate decisions. Same with Facebook...in fact, these companies have basically stated that if they weren't legally required to have an IPO, they wouldn't. If Google had ever claimed that they would listen to outside shareholders, or even if they hadn't gone out of their way to state that they wouldn't, then the power grab would be deceptive and evil.
  - helmut_hed 15y ago
    Google and Facebook were/are "legally required" to have IPOs? I believe they are only required to release financial statements. Even if that were true, though, claiming this is their sole reason to IPO strikes me as disingenuous, given the improvement in liquidity it provided/will provide for the fortunes of the company's insiders. Surely that played a significant role in their decision-making.
    - deleted 15y ago
      [deleted]
    - SatvikBeri 15y ago

asdfdsa1234 15y ago

Moves like this that consolidate power in the hands of large shareholders have precedent. From what I've read, small shareholders tend to be poorly treated under such arrangements, or so they claim. On the other hand, I like the out-there projects. I want them to create self-driving cars, re-usable space vehicles, strong AI, nanobots, and the rest, and as a shareholder I don't mind losing some profit to take that chance. However, this assumes power isn't abused over time, and without checks in place, one has to worry a bit.

aneth 15y ago

It's not a power grab so much as maintaining their current power. Without this provision, the stock split would result in the founders' voting power being cut in half, in which case they would of course elect not to split the stock. If I misunderstand, please correct me. As I see it, instead of splitting 10x voting stock held by the founders, they are issuing non-voting stock to everyone. I'm curious to know how they will differentiate between voting and non-voting common shares in the stock market - it seems one is worth at least marginally more than the other.

asdfdsa1234 15y ago
If the stock is split, the founders' stock will also be split, and their share of the whole will remain constant (assuming there is only one class of stock in existence). Listed companies have different tickers for each class of shares.
aneth 15y ago
My understanding was that this was to avoid issuing more founders shares. I was wrong. It is indeed a powers grab.

deleted 15y ago

[deleted]

Steko 15y ago

Felix Salmon has a much better write up of why it's bad: http://blogs.reuters.com/felix-salmon/2012/04/13/googles-evil-stock-split/ http://blogs.reuters.com/felix-salmon/2012/04/13/googles-evi... Quoting at length: Dual-class voting shares were illegal for most of the 20th Century, but came back in 1986. James Sterngold’s NYT story on their reintroduction is well worth a read, featuring as it does comments against the new rules from both Felix Rohatyn (”The one-share, one-vote rule is pretty fundamental to the market”) and T Boone Pickens (”Let’s face it, managements want this because they want to entrench themselves. They went to Congress to get protection and they didn’t get it. So they went to the exchange to get protection, and they got it.”) Even then, however, there were safeguards, including the crucial one that a majority of independent shareholders — excluding management and some directors — had to approve the move... Google has, now, clearly violated the spirit of the NYSE rules, if not their letter. It took 15 months for the independent directors on the board to be persuaded of this, in long and secret deliberations

anamax 15y ago
> Dual-class voting shares were illegal for most of the 20th Century, but came back in 1986. According to http://www.investopedia.com/articles/fundamental/04/092204.asp#axzz1rxM5WWdB http://www.investopedia.com/articles/fundamental/04/092204.a... , Ford has dual-class and I'm pretty sure that it has had it long before 1986. Of course, Ford may have had dual-class before the "most of the 20th century" rules were written and may have been grandfathered. FWIW, Berkshire-Hathaway (buffet's toy) has dual-class stock.

ralfd 15y ago

The NYTimes explained it differently. A shareholders voting right won't be cut in half. http://www.nytimes.com/2012/04/12/business/whats-up-with-googles-plan-to-split-its-stock.html http://www.nytimes.com/2012/04/12/business/whats-up-with-goo... > Investors typically have Class A stock now. They will be given an equal number of Class C shares, which won’t have any voting power. The value of the Class A stock will be split between the two, so if the stock is trading at $600 when it happens, a Class A share will be worth $300 and a Class C share will be worth $300. Investors will have twice the number of shares they held before, but the total voting power and stock value won’t change. So if Bob owns 100 shares worth $600 each, he will own 200 shares worth $300 each. Bob will still have 100 votes, and the value of all his shares will still be $60,000. What I don't get is why one shouldn't immediately sell non-voting C-shares and buy voting-power A-shares back. Or only buy A-shares. Normally non-voting shares will be compensated by a bigger dividend. But Google doesn't pay a dividend (yet)?

sp332 15y ago
I think there's some information missing. Voting shares are always worth more than non-voting shares, for exactly the reason you mentioned.

cpeterso 15y ago

Will the price of new Class C shares (with a new ticker symbol) float independent of GOOG stock price? It will be interesting to watch the price difference between the shares.