5 ms·

Eric Schmidt Plans To Sell 3.2M Google Shares

27 points by rohit6223 14y ago

cremnob 14y ago
When the news about the change in structure of the shares came out a while back I decided that this is a company that I could never invest in (a big enough discount to intrinsic value may change my mind). The execs can reduce their economic interest in the company while maintaining control, which isn't great for keeping their interests aligned with shareholders. e: Here's a study that shows that companies with dual-class share structures pay executives more in compensation than usual and make value destructive acquisitions. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1080361 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1080361
- jmillikin 14y ago
  http://investor.google.com/corporate/2012/founders-letter.html http://investor.google.com/corporate/2012/founders-letter.ht... > Larry, Sergey and Eric have agreed to subject their > shares to a Transfer Restriction Agreement. This > agreement will maintain the same link between their > voting and economic interests that exists today, even > if they sell some of their non-voting Class C shares. > If the founders or Eric wish to sell or transfer their > non-voting Class C shares, a “stapling” provision in > the agreement requires them to either sell an equal > number of Class B shares, or convert an equal number > of Class B shares into Class A shares. No other > stockholders will be subject to these restrictions > upon the transfer or sale of their shares.
  - cremnob 14y ago
    While better than not having the agreement (which terminates when their share falls below 34% of voting power), the new share structure is not shareholder friendly. Class C shares can now be issued to employees or used for acquisitions, which would dilute the economic interest of shareholders without diluting their voting interest.
    - Evbn 14y ago
      The TC article says their voting power is already only 25% combined (8% each)
      - cremnob 14y ago
        The proxy statement says they collectively own more than half of the voting power.
- magicalist 14y ago
  This is kind of a weird way to evaluate Google in particular since they already have a dual class share structure. Just check their executive pay levels and acquisition patterns, which you should do anyways. You don't need to make a probabilistic argument when you have direct evidence. Meanwhile, in many instances shareholders tend to be capricious and uninterested in long term health, especially when particular shareholders are heavyweights but in unrelated markets (e.g. hedgefunds under plurality voting charters) edit: also what jmillikin said, which is particularly apt since the study you cite did not claim those results as more likely in dual-class companies, but found them correlated with the growth of the divergence between insider voting rights and cash-flow rights.
  - cremnob 14y ago
    See my response to jmillikin. Your comment about the study's findings is semantic, because it does claim that its more likely to happen: "These findings support the hypothesis that managers with greater control rights in excess of cash-flow rights are prone to waste corporate resources to pursue private benefits at the expense of shareholders."
staunch 14y ago
Is it worth the trouble to sell rather than borrow against it? Anyone have any idea on the economics of borrowing against such a large amount of equity in such a stable company?
- ChuckMcM 14y ago
  Absolutely. Eric lived through the Dot Com explosion where he had multiple millions of dollars in Sun stock that had he borrowed against he would have no collateral today. The first mistake made by young people who are suddenly 'rich' on paper because the one stock they own is worth a lot of money, is borrow against it as if it was money. Only to have the stock value vanish and they end up destroying what savings they did have repaying those loans. There were a number of stories in the Mercury News about people who built dream homes starting pre-bust, only to sell them for pennies on the dollar post-bust because they couldn't afford them any more.
  - staunch 14y ago
    I understand that for a new company or a private company, but Google's stock is hardly comparable. I'm just curious how much it'd cost to lock in the value of his shares and then borrow against it.
    - Scorponok 14y ago
      Even if google itself isn't going anywhere, if the stock market falls over again it could cut a big chunk out of the value of everything, including "safe" companies like google.
      - staunch 14y ago
        And of course I'm sure that's not hard to account for with some simple financial instruments.
    - tedunangst 14y ago
      Enron was stable until it wasn't.
loceng 14y ago
I would buy them all if I could..
- taligent 14y ago
  Not me personally. If Facebook Search even remotely takes off then that will siphon away a significant amount of advertising that Google relies on. And Google has shown a worrying inability to monetize any of their recent projects. Docs/Gmail/Youtube/Android aren't making much money, Glasses is niche, none of the OEMs are interested in their self driving car technology and their Motorola acquisition has been an unquestionable disaster.
  - melvinram 14y ago
    YouTube is driving billion+ in ad revenue if I remember correctly.
    - taligent 14y ago
      Exactly. Which is 2% of their total yearly revenue. They still rely far too heavily on their existing Google Search/Google Adsense cash cows.
      - niketdesai 14y ago
        Yeah but this is the scenario many companies face. It's not like there are THAT many companies with Billions in multiple revenue channels that aren't effectively umbrella corporations. Google funnels most of their diverse online product set back into the primary money generator. I'm sure we'll see less of that in the future as there are so many people that have pointed this out it's almost tiring.
- deleted 14y ago
  [deleted]
ChuckMcM 14y ago
Anyone who can end up with > 1B$ in cash after taxes and fees at the end of the day is in an interesting place. I have really been impressed with the gusto in which Bill and Melinda Gates have thrown their fortune behind their philanthropy goals. From a cultural history perspective, older families with dynastic wealth tended to get diversified as the generations spread wider and wider, but modern day generations are quite narrow, between one an four families at any given time, rarely spreading. Many people believe that as production capacity outstrips demand at any cost point we'll enter a sort of 'star trek' like period where nobody has to work. Of course somebody has to do some work, but who that will be, that will be the economic factor of the times. With fertility at 1.6 births per family then for a 21st century family patriarch, a billion dollars in a trust fund could probably provide a living for you descendants pretty much forever.
- _delirium 14y ago
  It'll be interesting to see how that plays out. The "negative" possibility is a reemergence of old-style landed gentry, where wealth passes down from generation to generation with relatively little perturbation or erosion, interrupted only in the case of the "bad apple" bone-headed heir who actively blows the family fortune. It's interesting that both Gates and Buffett pretty consciously opted out of finding out how that would play out. Of people currently in the list of top-20 richest people, the ones to observe (successfully into multigenerational territory) seem to be the Waltons, Kochs, and Bettencourt. But probably more, since the cutoff for top-20 is $22 billion, and you hardly need that much to start a multigenerational fortune, especially if people aren't having a lot of kids anymore. I wonder if there's enough data to put together a graph of how previous American fortunes fared, actually. What did the trajectory of the Rockefeller estate look like as it was split among heirs and invested in various forms?
lifeisstillgood 14y ago
This seems a well timed move by Schmidt. Google share price has had a lot priced into it recently (Jumps on self driving cars, google glasses etc) and the Inevitable drop in QE means the price is going to have to slow. Not decline, just grow slower. That's not to say google is in particular trouble, but their growth markets for the future are BIG markets, fibre, cars, home automation - All markets that need lots of pump priming, lots of infrastructure work and that will eventually become ubiquitous. There may not be a lot of profit in the markets or google may not be able to capture it but there will be a lot of cash, and that maybe google's destiny - PG&E. Just my two cents (been reading up on profitability and ROI of 19C railways - fascinating)
- taligent 14y ago
  Their work on Google Fibre is definitely an interesting one and there is a huge opportunity there if they can get navigate their way around the massive players there already. But Google is playing smart by lobbying governments to open up competition. The car opportunity is pretty much non existent for them. All of the top 20 car manufacturers have had projects for years and Volvo, Toyota already have plans to launch in 2014. They may look to someone like Tesla for a partnership but they are niche.
  - wamatt 14y ago
    Interesting that you're appear so dismissive of Google's self driving cars. I'm not claiming you're necessarily wrong, but I am intrigued about the other self driving options and how they surpass Google's solution? It would appear to be a widely held belief, that Google is the pioneer and leader in the field, at least with respect to the software/AI.
    - taligent 14y ago
      > It would appear to be a widely held belief Among people who don't know much about the automotive industry. The software/AI is secondary to the ability of the solution to work in hundreds of millions of cars in hundreds of countries (all with varying regulations) under an infinite array of conditions. The car companies have decades of experience at this. Google has none. And even worse they have a penchant for beta software and a concerning inability to ship products properly. So whilst Google's software may be technically better (I don't know) in the grand scheme of things it is a meaningless consideration.
lifeisstillgood 14y ago
This seems a well timed move by Schmidt. Google share price has had a lot priced into it recently (Jumps on self driving cars, google glasses etc) and the Inevitable drop in QE means the price is going to have to slow. That's not to say google is in particular trouble, but their growth markets for the future are BIG markets, fibre, cars, home automation. All markets that need lots of pump priming, lots of infrastructure work and that will eventually become standards globally There may not be a lot of profit in the markets or google may not be able to capture it but there will be a lot of cash. Just my two cents (been reading up on profitability and ROI of 19C railways - fascinating)
TallboyOne 14y ago
That's gotta be a good feeling. One I may never feel in 1000 lifetimes, but I sure would love to know that feel.
- rooshdi 14y ago
  A feeling of winning life's lottery? You've already won: http://www.globalissues.org/article/26/poverty-facts-and-stats http://www.globalissues.org/article/26/poverty-facts-and-sta...
Evbn 14y ago
That is a huge amount to sell in one year. Wonder why he is unloading so fast. Why not a 5 year plan?

27 points by rohit6223 14y ago

When the news about the change in structure of the shares came out a while back I decided that this is a company that I could never invest in (a big enough discount to intrinsic value may change my mind). The execs can reduce their economic interest in the company while maintaining control, which isn't great for keeping their interests aligned with shareholders. e: Here's a study that shows that companies with dual-class share structures pay executives more in compensation than usual and make value destructive acquisitions. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1080361 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1080361

jmillikin 14y ago
http://investor.google.com/corporate/2012/founders-letter.html http://investor.google.com/corporate/2012/founders-letter.ht... > Larry, Sergey and Eric have agreed to subject their > shares to a Transfer Restriction Agreement. This > agreement will maintain the same link between their > voting and economic interests that exists today, even > if they sell some of their non-voting Class C shares. > If the founders or Eric wish to sell or transfer their > non-voting Class C shares, a “stapling” provision in > the agreement requires them to either sell an equal > number of Class B shares, or convert an equal number > of Class B shares into Class A shares. No other > stockholders will be subject to these restrictions > upon the transfer or sale of their shares.
- cremnob 14y ago
  While better than not having the agreement (which terminates when their share falls below 34% of voting power), the new share structure is not shareholder friendly. Class C shares can now be issued to employees or used for acquisitions, which would dilute the economic interest of shareholders without diluting their voting interest.
  - Evbn 14y ago
    The TC article says their voting power is already only 25% combined (8% each)
    - cremnob 14y ago
      The proxy statement says they collectively own more than half of the voting power.
magicalist 14y ago
This is kind of a weird way to evaluate Google in particular since they already have a dual class share structure. Just check their executive pay levels and acquisition patterns, which you should do anyways. You don't need to make a probabilistic argument when you have direct evidence. Meanwhile, in many instances shareholders tend to be capricious and uninterested in long term health, especially when particular shareholders are heavyweights but in unrelated markets (e.g. hedgefunds under plurality voting charters) edit: also what jmillikin said, which is particularly apt since the study you cite did not claim those results as more likely in dual-class companies, but found them correlated with the growth of the divergence between insider voting rights and cash-flow rights.
- cremnob 14y ago
  See my response to jmillikin. Your comment about the study's findings is semantic, because it does claim that its more likely to happen: "These findings support the hypothesis that managers with greater control rights in excess of cash-flow rights are prone to waste corporate resources to pursue private benefits at the expense of shareholders."

staunch 14y ago

Is it worth the trouble to sell rather than borrow against it? Anyone have any idea on the economics of borrowing against such a large amount of equity in such a stable company?

ChuckMcM 14y ago
Absolutely. Eric lived through the Dot Com explosion where he had multiple millions of dollars in Sun stock that had he borrowed against he would have no collateral today. The first mistake made by young people who are suddenly 'rich' on paper because the one stock they own is worth a lot of money, is borrow against it as if it was money. Only to have the stock value vanish and they end up destroying what savings they did have repaying those loans. There were a number of stories in the Mercury News about people who built dream homes starting pre-bust, only to sell them for pennies on the dollar post-bust because they couldn't afford them any more.
- staunch 14y ago
  I understand that for a new company or a private company, but Google's stock is hardly comparable. I'm just curious how much it'd cost to lock in the value of his shares and then borrow against it.
  - Scorponok 14y ago
    Even if google itself isn't going anywhere, if the stock market falls over again it could cut a big chunk out of the value of everything, including "safe" companies like google.
    - staunch 14y ago
      And of course I'm sure that's not hard to account for with some simple financial instruments.
  - tedunangst 14y ago
    Enron was stable until it wasn't.

loceng 14y ago

I would buy them all if I could..

taligent 14y ago
Not me personally. If Facebook Search even remotely takes off then that will siphon away a significant amount of advertising that Google relies on. And Google has shown a worrying inability to monetize any of their recent projects. Docs/Gmail/Youtube/Android aren't making much money, Glasses is niche, none of the OEMs are interested in their self driving car technology and their Motorola acquisition has been an unquestionable disaster.
- melvinram 14y ago
  YouTube is driving billion+ in ad revenue if I remember correctly.
  - taligent 14y ago
    Exactly. Which is 2% of their total yearly revenue. They still rely far too heavily on their existing Google Search/Google Adsense cash cows.
    - niketdesai 14y ago
      Yeah but this is the scenario many companies face. It's not like there are THAT many companies with Billions in multiple revenue channels that aren't effectively umbrella corporations. Google funnels most of their diverse online product set back into the primary money generator. I'm sure we'll see less of that in the future as there are so many people that have pointed this out it's almost tiring.
deleted 14y ago
[deleted]

ChuckMcM 14y ago

Anyone who can end up with > 1B$ in cash after taxes and fees at the end of the day is in an interesting place. I have really been impressed with the gusto in which Bill and Melinda Gates have thrown their fortune behind their philanthropy goals. From a cultural history perspective, older families with dynastic wealth tended to get diversified as the generations spread wider and wider, but modern day generations are quite narrow, between one an four families at any given time, rarely spreading. Many people believe that as production capacity outstrips demand at any cost point we'll enter a sort of 'star trek' like period where nobody has to work. Of course somebody has to do some work, but who that will be, that will be the economic factor of the times. With fertility at 1.6 births per family then for a 21st century family patriarch, a billion dollars in a trust fund could probably provide a living for you descendants pretty much forever.

_delirium 14y ago
It'll be interesting to see how that plays out. The "negative" possibility is a reemergence of old-style landed gentry, where wealth passes down from generation to generation with relatively little perturbation or erosion, interrupted only in the case of the "bad apple" bone-headed heir who actively blows the family fortune. It's interesting that both Gates and Buffett pretty consciously opted out of finding out how that would play out. Of people currently in the list of top-20 richest people, the ones to observe (successfully into multigenerational territory) seem to be the Waltons, Kochs, and Bettencourt. But probably more, since the cutoff for top-20 is $22 billion, and you hardly need that much to start a multigenerational fortune, especially if people aren't having a lot of kids anymore. I wonder if there's enough data to put together a graph of how previous American fortunes fared, actually. What did the trajectory of the Rockefeller estate look like as it was split among heirs and invested in various forms?

lifeisstillgood 14y ago

This seems a well timed move by Schmidt. Google share price has had a lot priced into it recently (Jumps on self driving cars, google glasses etc) and the Inevitable drop in QE means the price is going to have to slow. Not decline, just grow slower. That's not to say google is in particular trouble, but their growth markets for the future are BIG markets, fibre, cars, home automation - All markets that need lots of pump priming, lots of infrastructure work and that will eventually become ubiquitous. There may not be a lot of profit in the markets or google may not be able to capture it but there will be a lot of cash, and that maybe google's destiny - PG&E. Just my two cents (been reading up on profitability and ROI of 19C railways - fascinating)

taligent 14y ago
Their work on Google Fibre is definitely an interesting one and there is a huge opportunity there if they can get navigate their way around the massive players there already. But Google is playing smart by lobbying governments to open up competition. The car opportunity is pretty much non existent for them. All of the top 20 car manufacturers have had projects for years and Volvo, Toyota already have plans to launch in 2014. They may look to someone like Tesla for a partnership but they are niche.
- wamatt 14y ago
  Interesting that you're appear so dismissive of Google's self driving cars. I'm not claiming you're necessarily wrong, but I am intrigued about the other self driving options and how they surpass Google's solution? It would appear to be a widely held belief, that Google is the pioneer and leader in the field, at least with respect to the software/AI.
  - taligent 14y ago
    > It would appear to be a widely held belief Among people who don't know much about the automotive industry. The software/AI is secondary to the ability of the solution to work in hundreds of millions of cars in hundreds of countries (all with varying regulations) under an infinite array of conditions. The car companies have decades of experience at this. Google has none. And even worse they have a penchant for beta software and a concerning inability to ship products properly. So whilst Google's software may be technically better (I don't know) in the grand scheme of things it is a meaningless consideration.

lifeisstillgood 14y ago

This seems a well timed move by Schmidt. Google share price has had a lot priced into it recently (Jumps on self driving cars, google glasses etc) and the Inevitable drop in QE means the price is going to have to slow. That's not to say google is in particular trouble, but their growth markets for the future are BIG markets, fibre, cars, home automation. All markets that need lots of pump priming, lots of infrastructure work and that will eventually become standards globally There may not be a lot of profit in the markets or google may not be able to capture it but there will be a lot of cash. Just my two cents (been reading up on profitability and ROI of 19C railways - fascinating)

TallboyOne 14y ago

That's gotta be a good feeling. One I may never feel in 1000 lifetimes, but I sure would love to know that feel.

rooshdi 14y ago
A feeling of winning life's lottery? You've already won: http://www.globalissues.org/article/26/poverty-facts-and-stats http://www.globalissues.org/article/26/poverty-facts-and-sta...

Evbn 14y ago

That is a huge amount to sell in one year. Wonder why he is unloading so fast. Why not a 5 year plan?