Google share split is naked power grab | Hacker News Reader

Google share split is naked power grab

finance.yahoo.com

21 pointslarrys22 comments

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Felix Salmon has a much better write up of why it's bad:

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

> 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.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.

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-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)?

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

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.

And it's not like this is some coup where they come in and deprive the existing shareholders of their voting rights -- or, for that matter, of anything whatsoever. The status quo distribution of voting rights remains.

It seems like they're doing this for exactly the reason they say they are: They want to be able to grant employees an equity stake in the company without diluting the voting rights of existing shareholders. No one would have any right to complain if they chose instead to maintain the existing distribution of voting rights by paying employees in cash rather issuing new shares. Which makes the only thing you can legitimately complain about that this will cause them to tend to issue more stock as employee compensation rather than paying in cash -- and that's just a business decision. (And generally a pretty good one for the shareholders, since employees with an equity interest in the company have a direct financial interest in ensuring the company's success.)

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.

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.

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.

A company is legally required to go public when it has more than 500 shareholders.

Google had significant cash reserves before going public and has never had a period where they spent enough cash to go below what they received from the IPO. Facebook is in a similar position of having tons of cash and nothing to do with it.

Not to mention, both companies delayed their IPO as long as legally possible, which strongly suggests that they wouldn't have filed if they could get away with it.

That's not to say that there are no benefits from becoming a public company. It makes life much better for the employees who received stock options (though it doesn't provide as much of a benefit to, e.g., Larry Page and Sergey Brin). But it's fair to say that neither Google nor Facebook were enthusiastic about going public.

So, the founders of the company want to make sure they maintain control over it?

Why is this evil again?

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.

>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.

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.

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.

GOOG is down about 4% today.

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.

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.

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.

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.

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.

My understanding was that this was to avoid issuing more founders shares. I was wrong. It is indeed a powers grab.

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