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Google's IPO seeks $2.7bn

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Stefanie Olsen and Dawn Kawamoto CNET News

Published: 30 Apr 2004 08:30 BST

Internet search leader Google filed to go public on Thursday, seeking to raise $2.7bn (£3.2bn) in an unusual auction-style offering that will give the founders rare control over the company.

The registration filing with the US Securities and Exchange Commission offers an estimate of what the company believes it may be able to raise with its initial public offering, but it does not disclose the number of shares that will be offered nor the range in price for those shares.

In an unusual provision for a technology company, Google will create two classes of shares with different voting rights, a move that aims to guarantee that founders Larry Page and Sergey Brin will maintain decision-making authority. Such structures have proven beneficial in media companies such as The New York Times, the filing states.

With the filing, Google for the first time released its financial results, answering the long-awaited question about the company's profitability. The company generated $961.9m in revenue in fiscal 2003 and posted $105.6m in net profit. That marked the third consecutive year of profits for the Web's most popular search engine. During the most recent quarter, which ended on 31 March, Google collected $389.6m in revenue and posted a $64m profit.

Excluding provisions for charges including stock-based compensation and taxes, Google's performance is even better, with an operating profit margin of 62 percent, or $571.8m, for 2003.

As of 31 March, Google employed 1,907 employees, more than sixfold the number three years ago.

The filing caps months of speculation over a deal that many expect could signal a resurgence of Silicon Valley, after three lean years.

In a flourish befitting the company's offbeat reputation, founders Brin and Page included a letter to investors, which they dubbed an "owner's manual for shareholders." The letter outlines the company's goals, warning investors that Google as a public company will not follow the usual path.

"As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same," the letter states.

"In our opinion, outside pressures too often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations. Sometimes, this pressure has caused companies to manipulate financial results in order to 'make their quarter.' In Warren Buffett's words, 'we won't smooth quarterly or annual results: if earnings figures are lumpy when they reach headquarters, they will be lumpy when they reach you.'"

The founders have also fought to maintain their control over the company, even as it hired chief executive Eric Schmidt in 2000. According to the document, Page and Brin said they will run the company as a "triumvirate."

Another flourish involves the company's allegiance to its geeky roots: The amount of the $2.7bn offering contains an inside joke for the math-minded. The exact offering, $2,718,281,828, is the product of "e" and $1bn, where "e" is the base of the natural logarithm -- a logarithm especially useful in calculus -- and equals 2.718281828....

Google is sitting on a sizable war chest of $454.9m in cash and cash equivalents, according to the SEC filing.

That may bode well for the company, as it continues to duke it out with Yahoo and a number of other competitors, such as Microsoft, getting into the market.

Although Google named two investment bankers in its filing, the IPO process itself will be auction-based.

"It is important to us to have a fair process for our IPO that is inclusive of both small and large investors. It is also crucial that we achieve a good outcome for Google and its current shareholders," the filing states.

"This has led us to pursue an auction-based IPO for our entire offering. Our goal is to have a share price that reflects a fair market valuation of Google and that moves rationally, based on changes in our business and the stock market."

In their letter to investors, Brin and Page said they plan to sell some of their shares as part of the offering and are encouraging other shareholders to do so as well.

Shares in the company held by executives and top investors as of 31 March, 2004, were: Page, 38.6 million; Brin, 38.5 million; John Doerr, 24 million; Michael Moritz, 24 million; Sequoia Capital, 23.9 million; Kleiner Perkins Caufield & Byers, 23.9 million; and Schmidt, 14.8 million.

Also disclosed in Thursday's filings are previously confidential salaries of top executives.

Brin, president of technology, earns $150,000 with a bonus of $206,000; and Page, president of products, earns the same as Brin. Omid Kordestani, senior vice president of worldwide sales, makes $175,000 annually, with nearly $400,000 in bonuses. Wayne Rosing, vice president of engineering, earns $175,000 annually, with $150,000 extra.

Schmidt earns $250,000 annually with a bonus of $300,000. He has the right to purchase 14.3 million common shares at a purchase price of 30 cents; and another 426,000 preferred shares at $2.34.