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Can Google's IPO go?

Posted: Friday, August 13, 2004

NEW YORK (AP) This might be one thing Google's Internet search engine can't answer: What should the company do about its IPO?

Google faces the biggest decision of its financial life with the timing of its IPO. The much-anticipated event was supposed to happen this month, but that has been thrown into question amid Wall Street's steep slide and new legal troubles regarding its issuance of some shares.

Should it proceed as planned, the company risks that the offering won't be a home run. Yet holding off now has its downsides, too.

When Google announced in late April its plans to sell its stock to the public, it saw good times ahead. The stock market had been performing well, and the economy appeared to be in a healthy recovery.

An IPO this summer seemed liked perfect timing.

Wall Street has been abuzz over Google's stock ever since. It is big news not only because Google is such a recognizable brand but also because its offering of nearly 26 million shares is expected to raise more than $3 billion, the largest IPO since the booming late 1990s.

But in recent weeks, the tide has turned against Google.

To start, there has been a major sell-off in the stock market as concerns have mounted over the effect on the economy of rising oil prices and waning consumer demand. Major market indexes are now sitting below the levels that they started the year, and there is no telling when sentiment will turn its course.

Also troubling is the tepid appetite for technology stocks in general, as well as new tech-sector IPOs. This year's 30 tech offerings are down 14 percent on average from their initial price, the worst performing sector, according to Renaissance Capital's IPOHome.com.

Given those market conditions, some companies are already bailing out. Nanosys Inc., which specializes in the technology of very small materials, last week withdrew its IPO at the last minute after company officials determined that this wasn't the right time for the offering.

And in this slumping market, Google's potential price tag could be a turnoff for investors. With the stock expected to sell at $108 to $135 a share, it may be too pricey for many to stomach right now.

''Have an IPO now? I wouldn't do that, not if I were Google,'' said Tom Taulli, founder of the IPO research site CurrentOfferings.com and author of the book ''Investing in IPOs.''

Then there are its legal problems that have turned up because Google didn't register nearly 29 million common shares and stock options issued to employees and consultants. The distribution may have violated securities laws in 18 states.

The company is offering to buy back those shares and options for $25.9 million, but said in a filing with the Securities and Exchange Commission that it expected most employees and consultants would not accept the offer. Those shares will automatically become registered once the IPO is completed.

All this is giving the Google IPO a black eye. While it said in a regulatory filing on Tuesday that it would close the registration process for its IPO auction later this week, it didn't set a date to make its market debut.

With so much working against it, the company may feel compelled to delay its entry into the public markets until things settle down.

It wants its offering to be a success. It has to be a success.

Still, there are reasons for Google to proceed now. If the IPO is postponed, there is no guaranteeing that better times lie ahead. And maybe the popularity of the Google name alone could boost the stock in a market where not much else looks attractive.

Paul Bard, an analyst at Renaissance Capital, believes that doing the deal now could work to Google's advantage by putting the sole spotlight on its IPO. He points out that there have been other successful IPOs done during bumpy times on Wall Street, like eBay Inc.'s offering in 1998 as stocks were slumping as a result of the Asian financial crisis.

''Really it is only the strong companies that are able to come out of a market that isn't strong,'' Bard said.

Google right now has to weigh which way it wants to go. It is a tough choice that it will forever have to live with.

Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org



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