Google's IPO Trading Defies Dutch Auction Logic?

TopShelf writes "Today's first-day trading gains for Google may not have just been the result of ambitious day-traders. This story from CBS Marketwatch alleges that Google deliberately set the $85 IPO price well below the true clearing price of their Dutch Auction, and issued fewer shares than expected, perhaps with the intent of limiting supply and assuring themselves a nice runup during the first trading day. In the story's informal survey, winning bidders only received 75% of the shares they should have."

Comments

Shares Allocation

[Dysert]

In the Google prospectus, they state that they can set the ipo price such that successful bidders recieve approximately 80% of stock.
https://www.ipo.google.com/data/prospectus.html

In the event that the number of shares represented by successful bids exceeds the number of shares we and the selling stockholders are offering, the offered shares will need to be allocated across the successful bidder group. We, in consultation with our underwriters, expect to use one of two methods to do so--pro rata allocation or maximum share allocation. With either method, our objective is to set an initial public offering price where successful bidders receive at least 80% of the shares they successfully bid for in the auction. We do not intend to publicly disclose the allocation method that we ultimately employ. Once we choose an allocation method, we will not change it.

It was a mistake

[Anonymous Coward]

There was an error this morning in which one of the brokerage houses let two trades go through early which resulted in the briefly reported $140 price. The NASDAQ announced that trading had not yet begun and it began trading at the opening price of $85 a little bit later in the morning. Since Yahoo's chart likely just grabs the data as it's seen and plots it, fixing this may be a manual thing. You can read about the error here.

Re:Who cares?

[swillden]

Actually, the shares they are selling are NON_VOTING shares, so the pressure is not as great as you think.

Factually, you're completely wrong. But you're basically right.

The shares being sold are class A common stock, with one vote per share, just like the common stock of just about every other company. However, the founders and certain insiders are holding class B common stock, which has 10 votes per share. The net result is that the public shareholders have a very weak voice. In fact, if the Google insiders maintain a united front, the public shareholders are massively outvoted. That was arranged on purpose, because people at Google were concerned about the effect going public might have on them.

They thought about this danger, and took steps to prevent it, at least until the holders of class B common shares either sell or die (in which case the B shares automatically convert to A shares, one-to-one, meaning that what was 10 votes becomes one vote).