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Google lifts secrecy on $2.7 billion IPO
Tuesday, May 25 2004
NEW YORK -- Google Inc., whose very name is a metaphor for easy
access to information, has lifted a shroud of secrecy on its estimated
$2.7 billion initial public offering with an amended filing that
said 31 Wall Street firms will help sell the deal.
Until about a week ago, most of the firms were in the dark about
their roles in the long-anticipated deal, which is being led by
Morgan Stanley and Credit Suisse First Boston. Several said they
left a recent meeting at CSFB confused about some basic issues and
uncertain whether they would participate.
They didn't know how many shares they would keep for themselves,
how to calculate whether they would profit on the thin fees Google
was offering or the extent of their responsibility for stabilizing
the stock's price after shares begins trading.
What's more, some were miffed that CSFB and Morgan Stanley bankers
they had known for years were changing the rules for the selling
group and swearing them to levels of secrecy unusual for Wall Street.
"The guy from CSFB talked to me like he had a lawyer looking
over his shoulder," said one banker, who asked not to be identified.
"It was like he was a robot. It's unreal. We're all professionals
here."
Another veteran of the syndication process, in which lead banks
pick teams of Wall Street firms to sell big offerings, said prospective
syndicate members at the CSFB meeting had to sign nondisclosure
agreements. Spokespeople at CSFB and Morgan Stanley said regulatory
requirements about deals in registration prohibit them from commenting.
A Google spokeswoman also declined comment.
Every major Wall Street investment bank, with the exception of
Bear Stearns Co., was listed Friday in the amended filing as a member
of the underwriting group. The filing isn't a final share registration
statement, and additional firms could be added to the group.
Some bankers say they are going along reluctantly. Large offerings
like Google's typically bring lower underwriting fees, and the one
from the Mountain View, Calif., Internet search firm is likely to
set new standards with fees as low as 3 percent. That's well below
the 4 percent to 7 percent of the total deal that bankers are used
to pocketing.
Also, they could end up breaking even or losing money, after sales
and other costs. "It could be a loss leader for us," said
one banker.
No matter how miffed they are, however, few firms can afford not
to participate. Brokers say investors are clamoring for shares of
the most anticipated IPO since the dot-com bubble burst four years
ago, and to bid in the initial auction investors must have brokerage
accounts at firms in the syndicate. (They also must have access
to a computer, since required prospectuses will be sent by e-mail
under rules set by Google.)
"The impression I'm getting from virtually all my customers
is that they think they can get in and out very fast and make a
lot of money, like the IPOs in the 1990s," said Margaret Price,
a director at an Anchorage, Alaska, branch of Wachovia Securities,
the third-largest retail brokerage firm. "I don't think it's
going to happen."
Neither does Google. The intent of the online auction is to set
an offering price close to what the market can bear, the company's
registration statement says. Many stocks during the dot-com boom
skyrocketed as soon as they began trading after an IPOs, leading
to charges that underwriters lowballed offerings to ensure gains
for themselves and favored customers while hurting the issuing company
and other investors.
The online auction process, pioneered by W.R. Hambrecht & Co.,
which is a member of the syndicate, not only upsets the conventional
way IPOs are priced but also calls into question the traditional
need for underwriters who buy stock from the issuing company and
then resell it to investors, some bankers said.
They also question whether online stock auctions work as advertised,
citing some deals smaller than Google that performed poorly after
so-called Dutch auctions like the one the online search engine has
proposed.
The Securities Industry Association, the main trade group of the
U.S. brokerage firms, prepared a draft of a letter for members to
send to local papers questioning the auction methods but, partially
out of fear of antagonizing Google, dropped the project.
Bankers involved in some syndicate meetings said they couldn't
comment on the record on Google. "They've made it very clear
they don't want us talking about this," said one investment
banker
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