by Tom Taulli | January 31, 2014 1:25 pm
Since going public in August 2004, Google (GOOG) has had an amazing ride. During this period GOOG stock has gained nearly 1,000%, up to $1,181. And now the company is finally going to pull off a stock split.
This is something that has been in the works since June 2012. But the process was complicated by a shareholder lawsuit. However, after some wrangling, things have been cleared up and a GOOG stock split is expected for April 2.
It will have some wrinkles, though. With the Google stock split, the company will double the number of Class A shares outstanding. These new shares will be classified as Class C stock and have no voting rights. They will use the GOOG ticker.
As for the Class A shares, the symbol will be GOOGL and they will maintain their voting rights.
Why do this? Well, Google’s founders, Sergey Brin and Larry Page, want to maintain voting control. The cofounders own Class B shares, which give them 10 votes for each share of GOOG stock owned.
The fear is that the nonvoting shares of GOOG stock will fetch a lower valuation — which was the issue in the shareholder lawsuit. To deal with that concern, Google has agreed to compensate shareholders if there is at least a 1% discrepancy (by the end of 2014).
GOOG stock will split on a 2-for-1 basis, which means that the stock price will fall to $589. Now, of course, this has nothing to do with the fundamentals of the company. Instead, the stock price will simply adjust to the additional shares issued. Markets are efficient, after all.
But for retail investors, the price tag of a stock can be a psychological factor. Hey, it feels better to buy something at $589 versus $1,177, right? And because of this, GOOG stock may get some more retail buying, especially since the company has been a big winner over the years.
Of course, it never hurts to be at the center of some of the world’s biggest trends, such as mobile and online video, which drove GOOG stock up in the first place. But the split might just drive GOOG stock another boost.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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