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Get Four
|  | AUGUST 10, 2004
 SPECIAL REPORT By Scott Kessler The A-B-Cs of Google's Auction Here's a guide to investor questions about the search outfit's IPO auction, along with S&P's view on the best bidding price and strategy As part of what we consider one of the most unique initial public offerings in recent memory, Internet search leader Google is employing a Dutch auction to sell its shares. Essentially, would-be investors are bidding to purchase the shares. We believe this type of auction has never been used for such a large and prominent stock offering in the U.S., although it has been employed for various debt and international equity offerings. Because of the novelty of the process by which Google will sell its shares, we've set out to detail how the Dutch auction will work, the risks associated with it, and what we think would-be investors in the IPO should do. (Editor's Note: This article is an excerpt from Part 2 of S&P's Google Pre-IPO report. Full .pdf versions of Part 2, as well as Part 1 and the Search Engine Survey conducted for S&P, can be purchased directly at http://sandp.ecnext.com/ipo (Adobe Acrobat is required). Additional information on Standard & Poor's pre-IPO coverage on Google can be found at http://www.standardandpoors.com/pre-ipo) WHAT BIDS INCLUDE. The auction process, which began on July 30 and was still underway as of Aug. 9, will be conducted in five stages: Qualification, Bidding, Auction Closing, Pricing, and Allocation. Qualification requires registration for a bidder ID at www.ipo.google.com, which became operational on July 30. Google has indicated that this Web site may be open for obtaining bidder IDs for only one week. Bidder IDs will not be available once bidding begins. Once the auction starts, those who have qualified can submit bids through one of the 28 underwriters. A bid must include a desired number of shares, a contemplated per-share purchase price, and additional information as needed by the underwriter (to identify and confirm eligibility and suitability for participating in the IPO, and for sale consummation). Bids may be within, above, or below the estimated price range indicated by the company of $108 to $135 per share. Bid prices may be in any increment, including pennies. The minimum size of any bid is five shares. More than one bid can be submitted per bidder ID. Each underwriter can receive bids through one of more of the following means: over the Internet, by telephone, by fax, or in person. To participate in the auction, would-be investors must agree to accept electronic delivery of certain Google SEC filings. UNCERTAIN CLOSING TIME. During the bidding process, Google and its managing underwriters will monitor the master order book to evaluate demand. Based on this information and other factors, they may revise the price range, and could decide to change the number of shares offered (which would likely increase if the price range increases). A bid would have to be reconfirmed if more than 15 days have elapsed since submission, or the prospectus changes materially. If reconfirmation is required, electronic notification will be sent. If prior to the registration statement becoming effective, the expected price range or number of shares changes in a manner that is not otherwise material to the offering, notice will be provided on Google's IPO Web site, via press release, and electronically. The auction can close at any time. Once it ends, bid modifications and withdrawals are not possible. When the registration statement becomes effective, associated electronic notifications will be disseminated indicating that successful bids could be accepted in as little as one hour. Accepted bids will obligate purchase of allocated shares. Google expects to disclose a clearing price for the shares, which will be the highest price at which all of the stock is offered. The IPO price will be determined by Google and its underwriters after the auction closes, and will likely be equal to the clearing price. The IPO price could be lower than the clearing price.
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