Of GOOGs and GOOGLs: getting to grips with Google’s stock split

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Google logo

If you’re Google stock holder, you may recently have found yourself wondering what’s going on with the internet giant’s share price. Well first off, you saw right, the price halved, but that does not mean that your value halved. Simply, because two years after announcing that, the founders and essentially controllers of the business, Larry Page and Sergey Brin, would split the shares and control the company through their special voting rights B shares, the stock has finally split.

What you need to know is that as a Google shareholder you now have double the shares and own share code GOOG and share code GOOGL, one each for the old GOOG. Essentially at the same price, the GOOG and GOOGL find themselves, there is something sneaky about that too.

They essentially are class A shares, which have one-tenth of a voting right (GOOGL), class C shares which have NO voting rights. And then there are class B shares, which you and I cannot own.

According to a recent Wall Street Journal article, these shares (each one has TEN voting rights) allow Brin and Page control the course of the company by essentially having 56% of the vote, because of their ownership of the B shares. If you are looking for the nitty gritty, go to the Fourth Amended and Restated Certificate of Incorporation of Google Inc. on their investor relations page, and then do a search for the word voting.

Complicated? Not really. Double the shares in issue at half the price means nothing for valuations, the two separate stocks will share the earnings. BHP Billiton with two different country share registers (UK and Australia) where the PLC and Limited shares trade separately have a far more complicated structure than this one. Take the earnings per share projections and simply slice it in half to represent what you would see in front of you now. It is that simple. And let us be very honest here. Who better to have control over the business here than the founders and managers?

The only issue from now on becomes, well, which one do you own from here? From a pricing point of view it makes no difference. The two stocks will trade within a whisker of one another. But I am guessing that if you intend voting your stock on some matter in the future, you must then own the Class A shares, the one with the ticker GOOGL. If you intend not ever voting (because essentially it does not matter now, Page and Brin control the company) then own the GOOG shares. Because the deals will be done using the GOOG shares, with no voting rights. In other words, they will have better liquidity and are more easily tradeable over time.

But in order to get this stock split through, the company had to concede to some shareholders who had filed a class action lawsuit against the company in which they would compensate shareholders if there was a significant price difference between the A & C shares. I found a Yahoo finance article, which points out that the split includes “a guarantee to compensate Class C shareholders if their nonvoting status causes the value of their stock to fall well below the Class A stock price during the first year of trading.”

It continues: “The settlement will require Google to pay Class C shareholders if the average trading price of their stock is at least 1 percent below the Class A shares through April 2, 2015.” Perhaps another small reason to own the Class C share? Either way it does very little to sway one away from owning what we still consider a quality business. We continue to accumulate.

This article by Sasha Naryshkyine is adapted from the Vestact newsletter and republished with permission.



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