Google IPO could raise $4B
By Brett Cole
Bloomberg News Service
Google Inc. hired Morgan Stanley and Goldman Sachs Group Inc. to arrange its initial public offering, a sale that may raise as much as $4 billion, a banker involved in the transaction said.
The sale by Google, the world's most used Internet search engine, would be the biggest IPO since CIT Group Inc.'s $4.87 billion deal in July 2002.
It "will certainly be the deal of the year," said Sanford Robertson, who founded investment bank Robertson, Stephens & Co. before starting private-equity firm Francisco Partners LP.
Morgan Stanley and Goldman Sachs will lead a group of underwriters that includes Citigroup Inc., Credit Suisse First Boston, J.P. Morgan Chase & Co., Thomas Weisel Partners LLC and WR Hambrecht + Co., two bankers in on the sale said. They spoke on the condition they not be named.
Mountain View, Calif.-based Google may sell a stake of about one-third in the IPO, giving the company a market value of about $12 billion, the bankers said.
The company will probably register the shares for sale with the Securities and Exchange Commission this month and sell them by April, they said.
Representatives for the companies involved in the deal either declined to comment or didn't return phone calls.
The fees generated from Google's IPO may be as much as $280 million if the company raises as much as $4 billion based on a 7 percent fee.
Fees for the biggest IPOs are usually lower than the standard 7 percent. On CIT's sale, bankers collected commissions of 4 percent. That's still more than the 0.9 percent for corporate bonds and about 0.3 percent for advice on mergers.
There's "a lot of buzz around" the Google sale, said Reed Taussig, chief executive officer at Callidus Software Inc., a San Jose, Calif.-based company.
Morgan Stanley has taken public at least six companies backed by Kleiner Perkins Caufield & Byers, one of Google's venture investors.
Those sales included Netscape Communications Corp., whose August 1995 IPO ushered in the Internet boom.
Goldman Sachs has arranged IPOs for at least four companies backed by Sequoia Capital general partner Michael Moritz, a venture investor in Google.
Those sales include Google competitor Yahoo Inc., Webvan Group Inc., PlanetRx.com Inc. and Etoys Inc. Goldman also arranged the IPO of Google rival eBay Inc., which has a market value of about $42 billion.
Merrill Lynch & Co., which has the biggest brokerage force in the world, lost its bid to help arrange the sale.
The assignment for WR Hambrecht, which sells shares via the Web through an auction process, will be its biggest ever. Its share of the Google sale may exceed the $309.2 million of IPOs it has done since its first in April 1999.
In WR Hambrecht's Internet-based IPO bidding process known as the "OpenIPO," individual and institutional investors enter the amount of shares they want to buy and the price they are willing to pay. The bank finds the clearing price by tallying all bids and finds the highest price in which all shares can be sold.
"You need only so many banks in a deal," said Scott Appleby, president of mergers and acquisition advisory firm Appleby Group Inc. "The top four banks in one deal may not be the banks in the next deal."
Google's Internet site is the most-used in the world for Internet searches, according to research firm ComScore Networks. Google was used for 35 percent of Internet searches by U.S. users in October, ComScore said.
Google's search results are also available on other companies' Web sites, including Time Warner Inc.'s America Online, which pay Google licensing fees.
The company was founded by Stanford University graduate students Sergey Brin and Larry Page in 1998 and employs more than 1,000 people.
Google generates most of its revenue from a service known as sponsored-search advertising. Customers pay Google for the right to have their Web sites come up at the top of search results. Those results are set off in colored boxes and labeled "Sponsored Links" to distinguish them from those businesses haven't paid to influence.
Google probably had revenue of about $1 billion in 2003 and net income of about $200 million that will increase to about $1.5 billion of sales and net income of $300 million this year, according to Eric Martinuzzi, an analyst at Craig-Hallum Capital Group in Minneapolis.
"Any Internet site who wants to create revenue uses Google," Martinuzzi said.
