The economic power:Google

Google Inc., which runs the world's most-used Web search engine, said it plans to raise as much as $3.3 billion in an initial public offering that values the company at as much as $36 billion.

Google will sell 24.6 million shares for $108 and $135 a share, according to a Securities and Exchange Commission filing. The Mountain View, California-based company is selling a nine percent stake to investors and will have 268.5 million Class A and Class B shares outstanding.

At $36 billion, Google's market value would be lower than Yahoo! Inc.'s $40 billion. The filing provides a suggested share price for the company. When the company holds its auction-style share sale, bidders may drive the price higher.

``The question is not what the company is worth, but instead what people will pay for it,'' said Kevin Calabrese, an analyst at Argus research in New York, in an interview. ``That's how Google arrived at that price.''

Google also said it plans to list its Class A shares on the Nasdaq Stock Market under the symbol ``GOOG.''

Instead of channeling shares to institutions such as mutual funds through investment banks, Google hired Morgan Stanley, Credit Suisse First Boston and more than two dozen securities firms to run a sale that will give the public an opportunity to bid for stock by phone, fax or the Internet.

Financial Results

Google's net income in the first half of the year more than doubled to $143 million, or 54 cents a share, from $58 million, or 23 cents, a year earlier. Revenue jumped to $1.35 billion from $559.8 million, the company said in its filing.

Google generates most of its revenue by selling text ads that appear next to Internet search results on its own Web sites and those with whom it's formed partnerships, including Time Warner Inc.'s America Online. Google charges advertisers each time consumers click on their ads.

Larry Page and Sergey Brin, who began working together as Ph.D. candidates at Stanford University, founded the company in 1998, hold 15.7 percent and a 15.6 percent stakes in the company, respectively. They said they plan to sell a ``fraction'' of their holdings.

Kleiner Perkins Caufield & Byers and Sequoia Capital, two of the world's biggest venture-capital firms, put up a total of $25 million in June 1999 for stakes in Google.

Yahoo also holds a stake, along with funds whose investors include celebrities such as Tiger Woods, Shaquille O'Neal, Henry Kissinger and Arnold Schwarzenegger, according to the New York Times.

Kleiner Perkins and Sequoia Capital each hold 9.7 percent of Google. Chief Executive Officer Eric Schmidt has a 6 percent stake.

New Services

Google is developing new services and buying companies to add features to its site. Google said July 13 that it bought Picasa Inc. and has been offering its software for storing and organizing digital photos. Google also is testing an e-mail service.

The company has stated in previous SEC filings that it expects profit margins to decline as growth slows and it spends more on product development, sales and marketing.

Along with slowing growth in Internet traffic, Google is facing more competition. Microsoft Corp., the world's largest software maker, is testing a new search engine that it's developing for its own MSN Web sites.

Google Inc. said on Monday its highly anticipated initial public offer could value the company at more than $36 billion, prompting some investors to question whether growth prospects for the world's top Web search provider justified that rich valuation.

In a filing with the Securities and Exchange Commission, Google estimated it would sell its shares for between $108 and $135 through an online auction expected next month.

That price range would mean that the IPO could raise as much as $3.3 billion. It would also value the Mountain View, California-based company more richly than its closest rival, Yahoo Inc. (YHOO.O: Quote, Profile, Research) and mark its emergence as a public company larger than old-economy stalwarts like Ford Motor Co. (F.N: Quote, Profile, Research) and McDonald's Corp. (MCD.N: Quote, Profile, Research)

At the projected pricing, Google would rank as the eighth-largest IPO by a U.S. company, according to Thomson Financial. It would also be the highest-priced offering on a per-share basis since Genentech's July 1999 IPO.

"I hate to say this ... but the thing is becoming somewhat like a circus," said Mark Herskovitz, manager of Dreyfus Premier Technology Growth Fund.

One of the most eagerly awaited public offerings in years, Google has become one of the world's leading brands, its search engine so ubiquitous that its name has become a verb for looking up information.

Its size and strength have pushed Microsoft Corp. (MSFT.O: Quote, Profile, Research) into developing its own search technology, an area expected to remain one of the key drivers of Internet revenue growth.

SET UP FOR A FALL

But Google's size and the hype surrounding its listing could set it up for a fall if it disappoints investors as a publicly traded company, analysts have cautioned.

The company faces a number of risks, as highlighted Monday by the outbreak of a computer worm that made Google's search engine periodically unavailable worldwide throughout the day.

Google also depends on advertising for its revenue. Even as a public company, it will also remain under the control of its founders, a prospect that has limited the enthusiasm of some fund managers

Web search company Google Inc. said it may have illegally issued shares potentially worth as much as $3.1 billion after its planned IPO, and offered to buy them back for a fraction of that amount.

The legal wrangle, disclosed in a filing with the U.S. Securities and Exchange Commission on Wednesday, comes ahead of Google's highly anticipated initial public offering (IPO) that could raise as much as $3.3 billion and has been expected as early as next Wednesday.

The company said it sold 23.2 million shares to 1,105 current and former employees and consultants and granted an additional 5.6 million stock options to 301 people. The transactions took place between September 2001 and June 2004 and were not registered, as required by law, Google said.

Google, based in Mountain View, California, said it will pay $25.9 million, including interest, to buy back the shares and options. Some holders of the securities might sue the company rather than accept the buyback, it said.

The offer will expire in September, Google said, without specifying a date. Holders who reject or don't respond to the offer will have their shares automatically registered after the IPO is completed, it said.

It was not immediately clear whether the episode would affect the timing of Google's IPO, which it said it plans to conduct "as soon as practicable."

Google plans in its IPO to offer 24.6 million shares at an estimated $108 to $135 each, valuing the company at as much as $36 billion. At the high end of the range, the employee share holdings in question would be worth $3.1 billion.

The company said it may have broken federal securities laws and the securities laws of 18 states and the District of Columbia by failing to register the stock and options or exempt them from registration.

Google is using a "Dutch auction" process for the IPO, and bidders may register at http://www.ipo.google.com.

The company and its lead underwriters, Credit Suisse First Boston and Morgan Stanley, will determine the highest price at which there is demand for all shares, and price the shares at or below that price.

Google said the 18 states whose securities laws may have been violated are Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Maryland, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Texas, Virginia and Washington.

Google Inc. may delay its highly anticipated $3.3 billion IPO by about a week as the Web's No. 1 search engine waits for more fund managers to bid on the shares, a source familiar with the offering said on Thursday.

The delay came after Google spooked investors by disclosing it may have illegally issued shares worth as much as $3.1 billion to current and former employees.

The source, however, said the legal wrinkle did not cause the delay in the initial public offering, which was expected to happen as soon as next Tuesday or Wednesday.

Fund managers had already balked at the price range for the IPO, $108 to $135 a share. At the high end, the six-year-old company would be valued at 329 times its 2003 earnings, more than twice the ratio of its biggest rival, Yahoo Inc. (YHOO.O: Quote, Profile, Research) , and about 15 times the valuation of the average stock in the broad S&P 500 index.

Google spokesman David Krane, who described the company's disclosure and the offer to buy back the shares as a normal part of the IPO process, declined to comment on the timing of an IPO.

Lead underwriters Credit Suisse First Boston and Morgan Stanley also declined to comment on the company's disclosure or the timing of the IPO.

But investors said the disclosure, made in a filing with the U.S. Securities and Exchange Commission on Wednesday, cast a pall on the IPO in an already gloomy market in which Internet stocks have declined.

"It's hard to understand how that could be overlooked," said Mark Herskovitz, manager of the Dreyfus Premier Technology Growth Fund. "The deal was already controversial, and I'm sure it'll go through OK, but this does not add to people's comfort levels."

Google said in the filing that 23.2 million shares it issued to 1,105 current and former employees and consultants between September 2001 and June 2004 were not registered as required by law. It also granted an additional 5.6 million stock options to 301 people.

In the filing, Google offered to buy back the shares and options for $25.9 million, including interest at any price between 30 cents to $80. Google is expecting that its shares will be valued at $108 to $135 at the IPO.

The so-called rescission offer is only good until the actual IPO when the shares in question would be automatically registered with the SEC.

Google, the online search engine preparing for a much-anticipated flotation, said yesterday it would hand up to $300m (£162m) of shares to rival Yahoo! to settle a long running patent dispute.

The agreement removed a potential liability to the float, which has been beset by delays, technical difficulties and reports of a lukewarm reception from investors.

Google is giving Yahoo! an additional 2.7m shares, worth $328m based on Google's target price of $121.50 a share.

In return Yahoo! is dropping a lawsuit involving a crucial piece of online advertising technology. The settlement also resolves a dispute over how much Yahoo! is owed for a services contract from 2000 when relations between the two were less frosty.

Google said it would take a non-cash charge of between $260m and $290m which would result in a loss during the current quarter.

Under the settlement, Google will license a patent held by Overture Services, which Yahoo! bought last year. The technology in question serves up advertising alongside search results linked to key words and is a crucial part of Google's revenues.

A Google spokesman said: "We are pleased to have resolved these issues, and with the terms of the agreement."

The lawsuit was filed by Overture in 2002. In its defence, Google argued that its technology was different to Overture's. It ranks advertising according to the amount paid by advertisers and click-through rates, to give more relevant results. Overture ranks only according to how much a company is willing to pay.


Google also announced that it would increase the shares on offer in the planned flotation from 24.6m to 25.7m.

Google commanded 34.5% of all online searches in June in the US, compared with 29.2% for Yahoo! according to the research firm comScore Media Metrix. Yahoo! ended a deal with Google to provide its search facility in February this year, marking a sharpening of the rivalry between the two.

The Google flotation had been expected this week but delays were accompanied by suggestions that the high price and complex online "Dutch auction" deterred investors.

Google Inc., the world's most-used search engine, will begin taking bids in its auction-style initial share sale tomorrow, moving founders Sergey Brin and Larry Page closer to a test of whether investors will pay the $108 to $135 per share the company is seeking.

Individuals and institutions who registered by 5 p.m. New York time will be able to bid for Google stock, Mountain View, California-based Google said on its Web site. The price of shares in the IPO will be announced the week of Aug. 16, Google said.

Google's IPO may not raise as much as the $3.47 billion that the company has projected, analysts including Scott Kessler at Standard & Poor's said. Investors including Thomas Wyman at Husic Capital Management said they don't plan to submit bids because they're concerned about Google's slowing sales growth and competition from Yahoo! Inc. and Microsoft Corp.

``There's no question that there are a lot of risks related to this offering,'' Kessler said this morning. He recommends that investors bid $110 for Google shares.

Wyman, who helps manage about $500 million at Husic Capital Management, said his firm wouldn't buy shares in the IPO.

Investors will bid for Google stock, the company will close bidding and then set the price for its IPO in consultation with lead managers Morgan Stanley and Credit Suisse First Boston. Google has said in filings with the Securities and Exchange Commission the auction system is intended to limit share-price volatility other companies have experienced in their IPOs.

`Every Last Penny'

``Google is trying to get every last penny from investors,'' Rick Jandrain, manager of the $2.5 billion One Group Mid Cap Growth Fund in Columbus, Ohio, said before Google's announcement. `They're setting themselves up not to have a successful launch. I think a lot of people are on the sidelines.''

Google could make its much anticipated stock market debut tomorrow after the internet search engine last night said it had asked regulators for approval to set the final price for its shares.

Google said it had asked the securities and exchange commission to declare the filing for its initial public offering effective at 4pm today, New York time. The request suggests the IPO is still on track despite a cloud of negative publicity and hostile market conditions.

Google will close the auction after receiving approval and the final price could be set this evening, which means public trading could begin as early as tomorrow.

Successful investors will be notified by email once the IPO has been given the go-ahead by regulators. The outcome of the unusual "Dutch auction" will be closely watched.

Google used the auction with the aim of making the initial public offering open to as many members of the public as possible and of minimising the gains seen in the first few days of trading.

Institutional investors are said to have stayed away, fearful that the price could instead drop in short order.

Google set a range of between $108 and $135 (£59 and £73) a share but the volatile market plus a series of mishaps in recent weeks could see the stock priced lower. It is looking to sell 25.7m shares and raise about $3bn.

An analysis by the news agency Reuters last night put the range between $70 and $115.

There had been doubts that the flotation would go ahead at all. Google has stumbled several times during the process, including the admission that it had failed to declare millions of shares awarded to staff plus technical problems prompting delays.


Last week it was almost derailed by an interview with the company founders published in Playboy magazine, something that breaks the SEC rules on IPOs.

Google yesterday slashed the price range of its initial public offering by more than a quarter and reduced the number of shares for sale - a sign that volatile market conditions and a stream of negative publicity have taken their toll on the most anticipated flotation in years.

At most, the internet search engine company will now be worth $25.8bn (£14bn) when it joins the market, compared with a top estimate of $36.6bn.

In a statement posted on its website in the early hours of the morning, Google said it expects the shares to be priced at between $85 and $95 each, against forecasts of between $108 and $135. The number of shares on offer has been pared back from 25.7m to 19.6m.

The changes appeared to confirm widespread reports of tepid demand, particularly from institutional investors.

Google said it hoped regulators would approve the final paperwork for the registration of its IPO after trading closed on Wall Street last night. It had expected the United States securities and exchange commission to give its approval on Tuesday night. The SEC gave no reason for not doing so.

The latest delay could simply relate to the changes made to the offering. But Google also said the SEC had asked for more information regarding the interview with the company's two founders, Sergey Brin and Larry Page, published in this month's American edition of Playboy. The article potentially broke SEC rules on information about the company in the run-up to an IPO.

Shares of Google Inc. made their market debut on Thursday and quickly traded up 15 percent at $98.

The Web search company's initial public offering priced at $85 per share, far below original estimates, after the IPO was hit by a string of missteps and lackluster market conditions.

Google had slashed the expected pricing of its shares on Wednesday to between $85 and $95 per share, down from a previous range of $108 to $135 per share.

It also cut the number of shares offered to 19.6 million from 25.7 million, raising $1.67 billion.