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| Google says in a filing Wednesday that the SEC wants more inforrmation about an interview its founders gave to Playboy magazine. |
NEW YORK (CNN/Money) -
Google slashed the price range for its initial public offering by about 25 percent early Wednesday, suggesting there isn't nearly as much demand as projected for the widely anticipated debut of the search engine's stock.
The company also said its existing shareholders will be selling significantly fewer shares to the public because of the lower price.
The moves come the day after the Securities and Exchange Commission declined to declare the registration effective, as Google had requested. An SEC official would not say why the agency hasn't signed off on the IPO.
A person familiar with the situation told CNNfn that the SEC is expected to make a decision regarding Google's IPO after 4 p.m. ET Wednesday.
Google, in an SEC filing early Wednesday, said the agency has requested additional information about the publication of an interview with the company's two founders in Playboy magazine.
Google continues to insist it does not believe the interview, conducted after the company announced plans for the IPO, was a violation of securities law, and it said it would fight any such finding by courts. But it does list the article as a risk factor for the IPO that could force it to repurchase shares from investors, the same boilerplate warning it gave in an SEC filing Friday.
In a statement on its IPO Web site, Google said it has asked the SEC to declared the offering effective as of 4 p.m. ET Wednesday.
That could still be optimistic, said David Garrity, an Internet stock analyst with Caris & Co.
"It's by no means a slam dunk that it'll go this week," he said. "When you look what happened with Salesforce.com, that was significantly delayed by an interview by the CEO with the New York Times during quiet period."
Earlier this year Salesforce.com (CRM: Research, Estimates), which provides software for businesses to keep track of customers, saw its IPO planned for the week of May 24 delayed to June 23 after CEO Marc Benioff was quoted in the May 9 article in the Times. Ironically, that article compared the Salesforce.com IPO to Google's plans, and suggested that Google executives were being far more quiet during their so-called quiet period.
To $85-$95
Google said the offering price is now expected to be between $85 and $95 per share, rather than the previously announced range of $108 to $135. Assuming a share price at the midpoint of the new range, the value of the company would be $24.4 billion, down from about $33 billion based on the midpoint of the earlier price range.
Under the unusual "Dutch auction" method used to assign shares in the IPO, investors bid the amount they were willing to pay for shares. Google would then set the initial price at the level that would have sold all the shares. The drop in the offering range suggests that the bids were well below the company's earlier estimate of its worth.
Garrity said the cut in price is not surprising. He said the new range puts Google at about a 20 to 25 percent discount to competitor Yahoo!, which he believes is closer to a reasonable price for Google than the original range.
"I thought it should go at a discount, but I thought it would be 10 to 15 percent," said Garrity, who has no shares or investment banking relationship with either company. "I would argue for people who want to have a relatively straightforward investment in paid search on Internet, Yahoo! is still a more attractive deal than Google, given the large number of Google shares coming off lockup (that can go on the market) in the next six months."
"The simple answer is there's no need to hurry to buy Google," Garrity said.
Google also said that selling shareholders are reducing the shares they expect to sell to about 5.5 million shares, well below the 11.6 million shares they originally expected to sell.
Founders Sergey Brin and Larry Page and CEO Eric Schmidt all cut the number of shares they expected to sell by exactly half. Page now plans to sell 482,415 shares, Brin 481,113 shares and Schmidt 368,965. Those sales represent about 1 percent of Page's and Brin's Google holdings, and about 2.5 percent of Schmidt's stake in the company.
Shares being sold by officers and directors of the company as a group will now be 74 percent less than previously planned. Venture capitalist L. John Doerr, one of the board members who had planned to sell about 10 percent of his 21 million shares, will now be selling none of them.
But most of the outside companies that hold stakes in Google, including America Online, its largest outside shareholder, plan to go ahead with their previously planned sale of shares even at the lower price, according to the filing. AOL, like CNN/Money, is a unit of Time Warner Inc. (TWX: Research, Estimates)
The company itself is still selling 14.1 million shares, but the lower price means that the offering will now raise $1.2 billion to $1.3 billion for the company, rather than the $1.5 billion to $1.9 billion previously expected.
Some hoping for the best
One analyst following Google's stock offering said investors should not read anything into the latest delay.
"There's nothing that mandates the SEC had to comply with the request in the timetable expected by Google," said Scott Kessler, an equity analyst with Standard & Poor's.
Kessler added that the SEC may just simply be taking extra care in going through the details of approval since the offering was being so widely scrutinized.
"There is a lot of pressure on the SEC to ensure that this process is in full compliance with all governing rules and regulations. As high profile as this offering is, it puts a substantial onus on the SEC, so that's why it might be taking more time than expected," he said.
The setbacks are the latest in a series of strange twists and turns in the IPO process for the No. 1 Internet search engine, which filed to go public in April.
At the time, Wall Street raved about the company's leading position in the hot market for search-based advertising and marveled at its sales in the last few years. But in recent months, the enthusiasm waned.
At least one investor was taking the delay in stride.
"We have always had to be patient, and we will just have to wait one more day,'' Barry Randall, a technology fund manager at U.S. Bancorp Asset Management, which is bidding for Google shares, told Reuters Tuesday night.
But one fund manager said even the Google-specific problems could spell bad news for tech stocks overall.
"The last thing you want when markets are fragile is a high-profile IPO running into difficulty," Michael Browne, a fund manager at Sofaer Global Fund in London, told Reuters. "Sentiment-wise, it's not good."
There was a fair amount of confusion surrounding the controversial Dutch auction process the company chose to sell its shares. Google has also warned that it may have violated securities laws by failing to properly register shares and options it awarded to current and former employees.
In addition, Google, based in Mountain View, Calif., is going public when investors are worried about a possible slowdown in tech spending in the second half of the year. Internet stocks in particular have been hit hard due to concerns about their heady valuations.
Once the company begins trading, it will do under the ticker symbol GOOG on the Nasdaq.
Analysts quoted in this story are not bidding for shares of Google and their firms are not participating in the auction process, unless noted. From staff and wire reports
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