Why Google is splitting their stock

On Thursday, April 3rd, Google will split their stock, creating two stocks, each of which will start at approximately half the current share value. I thought the logic behind the split was interesting.

Via Seeking Alpha (free reg-wall):

The current shares you see trading are Class A. For each Class A share, investors will receive a share of the new Class C stock. If you assume that the market works properly, each of these shares will trade for about $560 post split, based on Friday’s close of $1,120.15.

Class C shares will have no voting rights, which is why Google is doing this. With this move, the goal is to keep co-founders Larry Page and Sergey Brin in control for a longer time period. The two own mostly Class B shares, which contain 10 times the voting power of Class A shares. A recent AP article states that the two own 56% of shareholder votes despite owning less than 15% of stock issued.

Once shares are split, Google can start using the Class C shares for compensation, acquisitions, and other dilutive items. Since these shares contain no voting power, Page and Brin won’t have their voting rights reduced as quickly as they would under the old system. At the end of 2013, according to the 10-K filing, Google had 335.832 million shares outstanding, of which 279.325 million were Class A, and 56.507 million were Class B.

Seems to me, the fact that there will be two different stock classes, one with voting rights and one without, will cause confusion in the market. Why would someone buy Class C shares when they could get Class A voting shares for the same price?The market will correct all this, I suspect, but still, if you have even the teeniest interest in the stock market, an upcoming learning experience.

  • Meaux

    Because if two people hold 56% of the vote, your voting rights are essentially worth $0.

  • Sigivald

    Why would someone buy Class C shares when they could get Class A voting shares for the same price?

    Because most purchasers don’t care about voting rights, but about selling the stock later at a higher price.

    (And Meaux is quite right – unless Page and Brin sell out later, nobody else is ever going to have enough votes to really matter, most likely – so the votes are almost worthless even to people who might otherwise care about them.

    As far as I know, if you want to try a minority-shareholder lawsuit you don’t even need voting shares, just shares…)