Original URL: http://www.theregister.co.uk/2004/08/09/google_ipo_jeopardy/

Google IPO 'hangs in the balance'

States launch stock goof enquiries

By Andrew Orlowski

Posted in Financial News, 9th August 2004 10:43 GMT

Google's public floatation is only "50/50" likely to proceed as scheduled this week, with US papers reporting that it will be delayed for "logistical reasons".

This follows a week in which Wall Street's finest piled into the company, criticizing the Dutch Auction-style IPO and warning small investors from participating. It didn't help that Google had to acknowledge that its notoriously chaotic internal organization was to blame for failing to register shares and options granted to over 1,000 employees and contractors with the regulatory authorities, prompting investigations from California and Connecticut states. What Bill Joy realized last year, we all now know. The Sun co-founder turned down a job at Google after seeing the out-of-control internal corporate culture.

But is Wall Street's criticism fair?

On the one hand, the spectacle of disgraced dot.com hypester Henry Blodget weighing in with advice for small investors at Slate magazine may generate nothing but sympathy for the tech company. Blodget became an emblem of bubble era dishonesty by maintaining "Buy" recommendations for stocks he privately described as "worthless" or "PoS" (for "piece of shit"). If Blodget is considered worthy enough to advise small investors now, perhaps the magazine should hire Mark Chapman as a Pop Columnist. Forgive and forget, why not?

Google decided to shun the traditional IPO route to market by choosing a complicated "Dutch auction" method, and some have called Wall Street's criticism sour grapes. But Google hasn't bypassed the institutions at all: 29 are taking part and only Merrill Lynch, Blodget's alma mater, has been turned away. A closer look at the criticism shows it to be sober and well-grounded.

"Can you say fiasco?" asked The Street's James Cramer. " In six months, Google's gone from a company everyone wants a share of to perhaps the single-most scorned entity I can recall."

"You set the price at a level that is the most forbidding to the most people: north of $100. What the heck does that prove? That you intend to be the next Berkshire Hathaway?" he wrote.

"You talk about shareholder democracy but then you do the single most anti-democratic thing possible: issue two classes of stock," echoing criticism of accountability. "Start the Dutch revolution without me," he concludes.

Scott Harshbarger, a former attorney general of Massachusetts, criticized Google's contemptuous attitude to accountability. Chairman Eric Schmidt - the nominal grown-up - fulfils the two roles of chairman of the board and CEO, effectively auditing himself. "It's a classic, pre-scandal, non-independent board," he said.

Investors on boards were even harsher. "Do you think that selling the public class "B" shares with no voting power is fair," wrote one, "this is the biggest scam since snake oil"; while another compared it to Enron. That's hardly fair, as Google is a profitable advertising broker that makes real money, not funny money. But both Google and Enron were immensely secretive, put great faith in clever algorithms, and both IPO'd with passionate ideologically-committed fanbases. But the fact that comparison has even been made shows how far its reputation for trust has fallen in a short space of time. If millions walk away winners from the Google IPO, the criticism is likely to be muted. We'll see soon enough. ®

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