Judging from the decline in Google Inc.’s share price on Friday – down 3 per cent in mid-morning trading, versus a 0.9 per cent decline for the S&P 500 – investors aren’t terribly keen on the technology company’s announcement of a 2-for-1 share split. Who can blame them?
Normally, share splits are good news. They tend to follow significant gains in a stock, and signal that management is confident that the share price isn’t about to dive. Splits can also make the stock more accessible to more investors.
But in the case of Google, the announcement comes with a significant downside: This is no ordinary share split that doubles the number of shares – and votes -- for current investors. The new shares that investors will receive will be non-voting shares, giving Google three classes of shares and effectively entrenching the current owners. That is, regular investors will hold a mix of non-voting and single vote shares, while the company’s founders will control the multiple-vote shares.
It’s perplexing, not because it complicates Google’s share structure but because it runs counter to the way things have been going. In Canada, companies (such as Magna and Telus) have been moving away from dual-class share structures in recent years.
And as blogger Felix Salmon notes, dual-class share structures were illegal in the United States for most of the twentieth century, before making a comeback in the 1980s. Mr. Salmon isn’t pleased by Google’s move – arguing that it violates the spirit of New York Stock Exchange rules -- and he’s not convince by the company’s rationale: that it “prevents outside parties from taking over or unduly influencing our management decisions.”
As Mr. Salmon explains: “This move, then, is basically a way for Google to try to retreat back into its pre-IPO shell as much as possible. It never really wanted to go public in the first place — it was forced into that by the 500-shareholder rule — but at this point, Google is far too entrenched in the corporate landscape to be able to turn back the clock. It’s too big, and too important, and has been public for too long. That’s the thing about going public: it might suck, but once you’ve done it, you’ve done it.”
He’s by no means the only one criticizing Google’s move. The stock market clearly reflects that.