Thursday, March 13, 2014
Google's Upcoming Stock Split
The USA Today reports that Google's unusual upcoming stock split is about to upend the popular Standard & Poor's 500 and short-circuit the influence of common shareholders.
The complex financial maneuver will create the effect of a two-for-one stock split and dramatically reduce the voice of Google's common shareholders, but also change how the company is reflected in the value of the popular S&P 500 index. The share price will be cut in half from its lofty per-share level of $1,207.30 Wednesday, but investors will see their ability to have a say in the company greatly reduced.
The changes kick off on April 2, when Google will pay a dividend using newly created class C stock, to existing holders of the company's class A and class B shares. The new class C shares will carry no voting rights, making them unusual relative to the common shares issued by most companies.
S&P Dow Jones Indices has reversed course on the way it will deal with the situation in the S&P 500. Originally, the index provider was going to replace Google's class A shares in the index with class C. But late Tuesday, S&P Dow Jones Indices said it would include both the class A and the class C shares, meaning the S&P 500 will now have 501 stocks in it, representing 500 companies.
The index's rules are also being changed, in that going forward, companies that issue a new class of stock will be included in the S&P 500 if certain criteria are met. Those criteria include tests of liquidity and materiality levels. S&P Dow Jones Indices is reviewing the companies in the S&P 500 that already have several classes of stock that trade and will decide which ones will be added to the index by September 2015.
Currently, there are nearly 50 companies in the S&P 500 that have multiple classes of stock that trade, including Berkshire Hathaway, Brown-Forman and CBS. More companies are considering multiple classes of stock to give management tools to fend off shareholder activists, maintain control and prioritize who gets dividends, says Howard Silverblatt of S&P Dow Jones indices.
Google currently has two classes of stock. The class A shares, which are held by the public, carry one vote per share. The class B shares, controlled by the company's founders, receive 10 votes. After the class C dividend is paid out, Google will have double the number of shares outstanding that it does now. Google has 279.9 million shares of class A and 56.2 million shares outstanding as of Jan. 30, 2014.
Despite Google's investor-unfriendly move, some investors such as Michael Farr of Farr Miller & Washington don't plan to sell their stock and might buy more. Google's move is so brazen, only companies "experiencing great success" would be able to pull it off, Farr says. "They can kind of do whatever they want because everyone is making money, and they're not under any real fire anywhere."