Google Decoded: Our Translation of the Stock Split Explanation
It’s official. Google (GOOG) is splitting its stock. Last week, in the course of reporting its first-quarter earnings, the company announced that it’s bowing to investor wishes and greenlighting a long-awaited “stock split.”
Ever the nonconformist, Google’s taking a novel approach, creating a new class of shares (C shares) and even assigning them their own ticker symbol, then issuing a new C share to every owner of an existing Class A or B share.
Confused yet? Google thought you might be, and so it accompanied its split announcement with an explanatory note to clarify the process. (Read it here). Even so, the clarifications need further clarification. So I’ve translated excerpts from Google’s letters to stockholders and offer this read-between-the-lines explanation of what they’re really saying.
What Google Said; What Google Meant
Google co-founder Larry Page anticipated criticism that, because Google’s new C shares won’t carry voting rights, the real motive of the stock split is to disenfranchise shareholders. He writes: “When we went public, we created a dual-class voting structure … [to ensure] that the management team, in particular Eric, Sergey and I, retained control over Google’s destiny. “
Translation: Don’t say we didn’t tell you so, because we did.
“As we explained in our first founders’ letter: ‘We are creating a corporate structure that is designed for stability over long time horizons. … The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company’s decisions … ‘ ” [emphasis added]
Translation: We told you more than once.
“New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights … “
Translation: We’re smarter than you and don’t want you mucking things up.
“While this decision was controversial at the time … Eight years later… everyone involved has realized tremendous benefits as a result.”
Translation: This is the part where you say “Thank you, Larry.”
“We have protected Google from outside pressures and the temptation to sacrifice future opportunities to meet short-term demands.”
Translation: Which — let’s be honest — you wouldn’t have done, you flighty speculator you.
“In our experience, success is more likely if you concentrate on the long term. Technology products often require significant investment over many years to fulfill their potential. For example, it took over three years just to ship our first Android handset, and then another three years on top of that before the operating system truly reached critical mass. These kinds of investments are not for the faint-hearted.”
Translation: ‘Fraidy cat.
“Given Google’s success, it’s unsurprising that this type of dual-class governance structure is now somewhat standard among newer technology companies.”
Translation: Heard of Facebook?
“These shares will be distributed via a stock dividend to all existing stockholders … It’s effectively a two-for-one stock split — something many of our investors have long asked us for.”
Translation: So really, when you think about it, this was actually your idea!
“After careful consideration with our board of directors, we have decided that maintaining this founder-led approach is in the best interests of Google, our shareholders and our users.”
Translation: Most importantly, it’s in the best interests of us.