“This week, a big event will occur in the stock market,” Bill Maurer reports for Seeking Alpha. “Earnings season is not quite here yet, and I’m not talking about the monthly jobs report. This single stock event may be one of the most important of the year, however. I’m talking about Google’s (GOOG) long awaited stock split. Google will split its shares into two trading classes, but both will be included in the S&P 500. This will cause an interesting phenomenon, and will spark an interesting debate.”
“There will still be 500 companies in the S&P 500, but there will be 501 components, as Google will account for two. If the split goes as planned, the two Google issues should have the combined weight that Google had pre-split,” Maurer reports. “The current shares you see trading are Class A. For each Class A share, investors will receive a share of the new Class C stock. If you assume that the market works properly, each of these shares will trade for about $560 post split, based on Friday’s close of $1,120.15.”
“Class C shares will have no voting rights, which is why Google is doing this. With this move, the goal is to keep co-founders Larry Page and Sergey Brin in control for a longer time period,” Maurer writes. “The two own mostly Class B shares, which contain 10 times the voting power of Class A shares. A recent AP article states that the two own 56% of shareholder votes despite owning less than 15% of stock issued… Google is using this split to protect the voting power of its co-founders, and the market will be watching closely to see how things evolve. Don’t forget, Google could be on the hook for a large payment if the Class C shares trade at a discount to Class A.”
Read more in the full article here.
“Previously, high-flying MasterCard (MA) split shares 10-for-1 in a deal that signaled the top in the stock, at least for now,” Stone Fox Capital writes for Seeking Alpha. “Unlike the MasterCard situation, Google isn’t necessarily signaling a top by splitting the stock after excessive gains. The stock remains relatively attractive on an earnings basis, but the bigger issue is the lost momentum and corporate governance questions. The bigger concern is that executives have spent the last two years trying to maintain control in a move that isn’t necessarily in the best interests of shareholders. As with all investments, the question is what lies around the corner and possibly this signals something that isn’t so positive similar to the news that continues to hit MasterCard investors after their split. The split might not doom the stock of Google, but it is far from a positive for shareholders.”
Read more in the full article here.
So essentially Google is doing a take back.
1. Current shareholders will lose 50% of their voting rights.
2. Class A shares are worth 50% less than they did.
3. Class C shares could lose value compared to the Class A during to the loss of voting rights. Class A share might not rise in price to the same degree.
If a current shareholder holds onto both stocks then not only have they lost voting rights but the value of the combined stock are likely to go down. The main article talked about compensation but with the company valued at $375BB. However lets suppose the Class C stock drops by 10% in a year (estimated at $15BB loss in value). Will Google be able to afford to pay that compensation and how will it affect their bottom line?
Of course shares do get diluted when new ones are issued. But a 50% dilution is huge and will hurt current shareholders.
And what happens when folks stop paying the zero-sum game for Google Adwords?
I don’t get it. If you have no voting rights, and you don’t receive a dividend (do they? I don’t think so) what do you actually own? I know a share is supposed to be a “piece of the company”, but if you have no say in how the company is governed, and you don’t receive a share of the profits, the only inherent value in your piece is that someone would have to buy it from you if they wanted to buy the company. Since Google isn’t likely to be sold to anyone soon, I don’t see that these non-voting shares have any worth, other that the possibility of a “greater fool” wanting to buy them from you (to sell to someone else).
The modern stock market is a f***ing joke.
——RM
Apple content?
Schadenfreude reservoir topped up 😀