January 26, 2010
By: Dr Search- Principal Consultant at the Search Clinic
Category: Uncategorized
According to an SEC filing late last week, Google’s founders Larry Page and Sergey Brin “each intend to sell approximately 5 million shares” — over a period of five years.
This is not a reaction to any particular development in the market or perception of the outlook for Google; rather this is part of a plan to diversify their portfolios over time.
According to the filing:
” These pre-arranged stock trading plans were adopted in order to allow Larry and Sergey to sell a portion of their Google stock over time as part of their respective long term strategies for individual asset diversification and liquidity . Using these plans, they can gradually diversify their investment portfolios and can spread stock trades out over an extended period of time to reduce market impact .”
Larry and Sergey currently hold approximately 57.7 million shares of Class B common stock, which represents approximately 18% of Google’s outstanding capital stock and approximately 59% of the voting power of Google’s outstanding capital stock.
Under the terms of these Rule 10b5-1 trading plans, and as a part of a five year diversification plan, Larry and Sergey each intend to sell approximately 5 million shares. If Larry and Sergey complete all the planned sales under these Rule 10b5-1 trading plans, they would continue to collectively own approximately 47.7 million shares, which would represent approximately 15% of Google’s outstanding capital stock and approximately 48% of the voting power of Google’s outstanding capital stock (assuming no other sales and conversions of Google capital stock occur).
Google has a dual class stock structure, consisting of Class A and Class B stock. Currently Brin and Page control about 59% of the Class B stock, but a minority of all outstanding shares. Class A shares have one vote each and Class B shares each control 10 votes.
At the end of the five year diversification term specified in the SEC filing, the two co-founders would own 47.7% of Class B shares. And together with CEO Eric Schmidt they would still own more than 50% of the Class B shares.
There have been unsuccessful efforts in the past to equalize the voting power of all shareholders.
One could argue that this dual-class stock structure enables Google to do things like stand up to the Chinese government, against the dominant logic of the market and potential objections of Class A shareholders (especially institutional shareholders). Indeed, Microsoft CEO Steve Ballmer has criticized the move as “irrational.”
With the closing price tonight at $542 (£338) if the full 10 million shares were sold today they would generate around £3.40 billion in cash. However they would still have stock holdings worth approximately another £30 billion.
