Attention Google investors: You’re getting twice as many shares in a change meant to help Larry and Sergey maintain control over the tech powerhouse.
The much-awaited Google 2-for-1 stock split happened on Wednesday when shareholders of record as of March 27 got two shares for every one they owned. One set of shares, called Class A, is trading under a new ticker symbol, “GOOGL.” The other, Class C, is listed under the company’s historic ticker, “GOOG.”
The shares started trading on Thursday.
The change means Google will have twice as many shares outstanding. The GAAP earnings per share Google will report for the first quarter also “will be half what we would otherwise report because our net earnings are divided into twice as many shares,” the company explained in March.
Founders Larry Page and Sergey Brin, who own the Class B shares, which are not publicly traded, will also get a Class C share for every stock they own.
Does that mean regular Google investors are about to get expanded control over the Internet giant? Not really.
That’s because GOOG and GOOGL will not be the same when it comes to having a say in the way Google is run. While each Class A share will still be counted as one vote, a Class C share is worthless voting-wise.
So why the change?
It’s essentially meant to boost Page and Brin’s ability to maintain control by stopping the dilution of their Class B shares as the company is now expected to issue mainly non-voting Class shares going forward.
“Classic founder move” was how BGC Partners analyst Colin Gillis described it to MarketWatch, adding that the new structure would give Google more flexibility in terms of M&A deals and offering stock incentives.
“They couldn’t do a big deal before using stock because it changes the voting rights,” he said. “Now, they’ve got a mechanism where they can use their paper for deals and not lose their majority voting rights.”
Stephen Diamond, law professor at Santa Clara University, said stock splits have been more common as a way to make a company’s stock “more accessible to retail investors,” and it also allows a board “to use the stock as currency to acquire other companies without shareholder approval as splits are approved by the board.”
IDC analyst Crawford Del Prete also pointed to the expanded control the move gives Google’s founders, saying “Larry and Sergey want to retain control, and this allows them to do just that by issuing the class C shares. This will allow them to use the class C shares to incent people and do deals without impacting voting rights.”
“There will be some needless ’emotion’ around the price drop, and it will perhaps be of interest to smaller investors, but that’s really noise long term,” he added.
Despite that noise, Rob Enderle of the Enderle Group argues the move will be good for investors.
“Letting the individual stock price go up very high kept a lot of the riff raff out of the market (day traders) and this made the stock far less volatile,” he told MarketWatch.
“By doing a split it will bring more investors in and likely result in a much higher valuation and the result should still be reasonably high but volatility will likely increase somewhat. Executives hold lots of stock so they are motivated to make moves like this but the other stockholders will benefit as well so their interests are aligned. I’m actually kind of surprised they don’t do this more often.”
— Ben Pimentel
Follow Ben on Twitter @benpimentel.
More news from MarketWatch:
Now there’s a 1987 chart to get worried about
S&P 500 will peak around 1,900 to 1,950 and then drop 30%: analyst
Robert Shiller: Best to forget ‘stock picking’
View more information: https://www.marketwatch.com/story/google-investors-are-about-to-get-goog-and-googl-shares-in-stock-split-1396289584