NYTimes.com Article: Google Edits Its Prospectus to Highlight Risk of Loss

[David Farber <dave () farber net>]

Google Edits Its Prospectus to Highlight Risk of Loss

June 22, 2004
 By SAUL HANSELL and JOHN MARKOFF





Google revised the document it will give prospective
investors yesterday, to state even more pointedly that the
unusual auction process for its initial stock sale could
cause its shares to fall after the offering.

"If your objective is to make a short-term profit by
selling the shares you purchase in the offering shortly
after trading begins, you should not submit a bid in the
auction," the revised prospectus stated.

Google's revisions were probably made in response to
comments from the staff of the Securities and Exchange
Commission, which has to approve the prospectus before the
stock sale. But any S.E.C. comments are confidential.

A spokeswoman for Google, which operates the Web's leading
search engine, declined to comment on the filing. It is not
clear whether there will be more amendments.

Some securities lawyers speculated that the commission
would force Google to remove an unusual letter from its
founders, Larry Page and Sergey Brin, which argues that the
company is unique because of its long-term view of the
business.

The revised prospectus still contains the letter, although
it has moved to the middle of the document, after the
enumeration of the potential risks of investing in the
company.

A section of the letter in which the founders discussed
their debate about going public was dropped. The founders
also added a nod to the view that managing for the long
term may not be the best course.

Investors, they noted, "may have trouble evaluating
long-term value, thus potentially reducing the value of our
company," they wrote. "Competitors may be rewarded for
short-term tactics and grow stronger as a result."

The letter keeps its jab at Wall Street analysts, noting
that companies that try to manage their earnings to be
consistent with analysts' forecasts "often accept smaller,
predictable earnings rather than larger and less
predictable returns."

But the risks section of the prospectus now warns that
analysts may still have the power to affect the stock's
price. It notes that because of the auction process, the
initial price "may have little or no relationship to the
price determined using traditional valuation methods." So
when analysts start to cover Google's stock, presumably
using those traditional methods, they may publish target
prices far below the offering price, possibly causing the
price to decline.

One brokerage firm, Merrill Lynch, that had originally been
listed as part of the 31-member underwriting group, was not
listed in the revised prospectus. A Merrill spokeswoman
declined to comment.

David Trone, an analyst with the Prudential Equities Group,
wrote in a report to clients yesterday that it appears
likely that Merrill Lynch dropped out because it concluded
that it would not make money in the deal, which is being
led by Morgan Stanley & Company and Credit Suisse First
Boston.

In the amended filing, Google underscored the likelihood
that its executives and employees would sell shares of the
company's stock during the initial public offering. The
company states in its prospectus that these sales will help
stabilize the auction process and will lead to greater
transparency in contrast to the traditional "lock-ups"
which prohibit company insiders from selling shares when a
firm goes public.

But Andrew Kessler, an independent Silicon Valley
investment analyst, said he was concerned that such sales
might provide Google executives with a way to manage the
company's stock price.

"It's another thing that makes this completely different
than any other I.P.O. that has been done in the past 50
years," Mr. Kessler said. "Google wants their cake and to
be able to eat it, too."

The language in Google's prospectus is in sharp contrast to
the restrictions on executives at Salesforce.com, a San
Francisco software firm expected to go public this week.

The Salesforce offering states that the company's employees
and shareholders have agreed with Morgan Stanley not to
sell shares for 180 days, without written prior consent.

Separately, there was an indication yesterday that Google's
vaunted corporate culture may be under stress as a result
of competition and the stock offering. As of yesterday
afternoon, typing the words "out of touch management" into
Google caused the search engine to list as its first result
a page describing the company's top management.

A person close to the company said that Google employees
had engaged in the practice of "Google bombing." A Google
bomb is an attempt by a group of people to cause a
particular Web page to become the first result for a search
phrase. The Google spokeswoman declined to comment.

http://www.nytimes.com/2004/06/22/business/22google.html? 
ex=1088904088&ei=1&en=5e185ebbc25088a0


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