Larry R has posted some good comments on my paper and Christine's paper. It's hard to disagree with most of what he has said. My core claim, which Larry agrees with, is simply that the deal structure had a branding effect. Whether it was a wise investment is a different question. It is impossible, as a practical matter, to measure how much money the founders left on the table. The evidence suggests that (1) they left quite a bit of money on the table, and (2) by cutting the number of shares they would sell, they didn't leave as much on the table as other pre-IPO shareholders. On the other hand, reducing the insider sales may have had the effect of boosting the IPO offering price, so it's awfully hard to know.
Put yourself in the position of Google's lawyers. Sergey, Larry, and Eric say that they want to pursue the Auction IPO, even though it may be costly to themselves, the firm, and other pre-IPO shareholders. They justify the move by suggesting that it is more consistent with what Google is all about and will maximize long-term value. What is your advice? Under Delaware law, their decision is almost surely protected by the business judgment rule. But, as Larry R would point out, this may be an instance of wasteful managerial consumption, and like many CSR moves, hard to justify in terms of long-term benefits to the firm. What is the right move? Do you have an ethical obligation to urge them to go the book-building route and maximize pre-IPO selling shareholder value?
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8345157d569e200d8348d73fd69e2
Links to weblogs that reference Ribstein on Google:
1. Posted by Ann on September 18, 2005 @ 11:16 | Permalink
"they left quite a bit of money on the table"
What measure are you using? The first day pop was only 18%. It might make sense to look at the price after the first few days, the first week or even the first month, rather than just the first trading day, but it wouldn't make sense to use the price after results were announced later as a measure of what the price should have been in the IPO.
More importantly, what's your opinion on why Google didn't use an auction for its recent follow-on? That would have been an even bigger branding event, since there have been so very few seasoned equity auctions. And, after all, an auction of shares already trading would be closer to Treasury auctions (which have been quite successful) than would an IPO auction.
To their credit, Overstock did an equity follow-on auction as well as an IPO auction. This supports the idea that Overstock was a "true believer" in the process. Even Overstock, however, did a traditional follow-on after their OpenFollowon Hambrecht auction.
But if Google had done a follow-on auction, it would have gathered huge attention. Wouldn't it have been another good branding event, with less downside risk because there was less room for the auction to misprice the shares?
2. Posted by Vic Fleischer on September 19, 2005 @ 6:36 | Permalink
An IPO makes more sense as a branding event than a follow on offering because it gets more attention from consumers. An IPO, more than a follow on, is an opportunity to take advantage of free PR in the business press and establish an identity as a company. Egalitarian-minded investors would pay attention to a follow-on, but that's not really the core audience. Still, it is possible that Google missed an opportunity to reinforce their brand image in the follow on offering.
I do think that Google left some money on the table, but I have no idea how much, or how to measure it. But this isn't key to the branding idea, as I see it. Even if it cost them nothing, I think it was a good idea to do the auction, because of the positive attention it generated.
3. Posted by Kate Litvak on September 19, 2005 @ 7:42 | Permalink
"I do think that Google left some money on the table, but I have no idea how much, or how to measure it."
Ann: as I told you...
| Sun | Mon | Tue | Wed | Thu | Fri | Sat |
|---|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | |||
| 5 | 6 | 7 | 8 | 9 | 10 | 11 |
| 12 | 13 | 14 | 15 | 16 | 17 | 18 |
| 19 | 20 | 21 | 22 | 23 | 24 | 25 |
| 26 | 27 | 28 | 29 |
