The initial google public offer attracted a lot of attention from many stakeholders. Before the public offer, the capital of the company came from the owners who had contributed funds to start the business. The company was facing financial problems but the owners were not willing to make the company public. They wanted to ensure that the company remained under their control. The company also needed funds to expand its activities. The company had borrowed funds from private individuals but the funds were still not enough. When Eric was appointed as the CEO in the year 2001, plans to go public were initiated.
The financial problems that the company was facing made it to issue shares. Early in 2004, the company required that all its employees should hold shares. This shows that the benefits of the initial private owners of the company were declining. During this year, the company wanted to raise 4 billion United States dollars through public issue. The shares were to be sold at a price of 85 dollars. According to the valuation by the members of the public, the shares were valued at a price of 100.34 United States dollars. This is why more than 22 million shares were sold on the first day. This shows that the shares of the company were highly demanded considering their value.
The company aimed at selling 19,605,052 shares to the members of the public. 14,142,135 of the shares were being offered by the company while 5,462,917 shares were being sold by the shareholders of the company. All these shares were to be sold at a price of $85. Those who mainly benefited from the initial public offer were the permanent employees of the google company. One of the competitors of google, called yahoo also bought 2.7 million shares from the company. Google managed to collect 1.67 billion United States dollars. This increased its total capital to 23 billion United States dollars.
The google IPO was higly waited considering that people were aware that google was a multinational company that was doing well in the market. People all over the world were therefore willing to invest in the company with the expectation that the company will yield good returns for the invested funds considering that the future of the company was predicted to be attractive. However, people waited for a long time before this event appeared. The first activity occurred in October 2003 when the company was planning to go public. At this time, the company needed capital to facilitate its expansion with an n aim of serving more people hence improving its revenue. At this date, Microsoft realized that the company was in problems and therefore approached google to seek for a partnership or a merger. The management of the company however turned down the offer.
Morgan Stanly and Golden Sach group was appointed by the CEO of Google Company as the underwriters who would make arrangements of the initial public offer of the company. This occurred in January 2004. The company at this stage wanted to raise 4 billion United States dollars from the public offer so that it would undertake its planned activities. The underwriters had various tasks ahead of them at the time. They were to determine who qualified to buy the shares from the company. They were also to decide on the methods that would be used to offer the shares to the public. The underwriters were also to decide the appropriate price at which the shares would be sold.
On April 29th 2004, Google Company made the first filing of the shares. By doing this, the company was able to raise 2.7 billion United States dollars through sale of shares to the employees. It was required that all the employees of the Google company had to buys shares from the company. This was to all permanent employees. This shows that the employees of the company were given the priority in the sale of the company shares. It is after this that the company lost some of benefits as a private company. It had become a public company and therefore was required to report its profits considering that it now had over 500 shareholders. This is when people realized that the company had made good profits from the year 2001 and the profits had been increasing over time.
Golden Sach was eliminated as an underwriter and the two underwriters that were left with the task of making the arrangements of their IPO of the company were Credit Suisse and Morgan Stanly. The tow underwriters agreed on auction as the best way of issuing the shares. The decision was reached at as a way of ensuring that more people had a chance to buy the shares from the company. The minimum amount that could make one acquire stocks from the company was $ 100,000. According to the members of the public, the stocks have a value of about $100.34 per share. However, the price of the shares was decided to be $ 85. This shows that the shares were offered at a lower price.
The price arrived at in the initial public offer was a fair price. Those who criticize the price argued that the price was set a day very close to the date of initial public offer. Initially, the underwriters set the price at between $108 and $ 135. This was intended to ensure that the shares of the company were not bought by speculators in the capital market. The change in the price means that the information did not reach some people. However, the auction process was decided since the underwriters considered it fair in that more people would by the shares considering that the price was below the actual value of the shares of the company. The underwriters arrived at the low price to ensure that a considerable amount of the company’s shares was sold at the first day. Some people however doubted the future of the company and as a result, they ignored purchasing the shares of the company. This is regales of the fair price that was put in place by the underwriters of the company.
The price of stock of google company can be given by the following formula;
Stock Price = (Dividends Paid + Expected Price) / (1 + Expected Return)
$ 197 was the expected price of the shares of Google Company
There was no dividends that were paid out in the year 2004. The formula to obtain the price of the shares becomes.
Expected price/1+ expected return. During the period, the people expected a 93 percent return on their invested funds. The price of the shares in 2004 was therefore;
197/1+0.93= $ 102.
The huge purchase of the google shares during the first day shows that the price of the shares was attractive. Considering that the price of the shares was determined through action, the demand shows the willingness to buy the google shares in a market whose price is determined by the forces of demand and supply. Auction made it difficult for the rich investors to gain large amounts of money through investing in the company. Instead, the approach benefited the poor in the society who could afford the prices of the shares at their market value.
The initial public issue was criticized in various ways. In the first place, the approach that was used in pricing the shares was not a good move for people who mainly engage in investing their money in shares to reap huge amounts of money. Secondly, the move to issue shares to the employees first was unfair considering that other members of the public were also willing to buy the shares at the same price. However, the initial public issue can be said to be successful considering that the company was able to raise the required amount of money. This is why the company was able to invest in projects that it aimed at investing and as a result, the value of the shares of the company has increased greatly. The investors as a result have benefited greatly from the capital gains of their investments.
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