An unusual split of Google (NASDAQ:GOOG) shares, designed to preserve control of the founders of the largest online search engine, raised questions and drew some complaints on Wall Street, now when investors are focused on issues related to short-term business of the company, writes Reuters. Google shares have lost Friday 4%, reaching $624.60, driven by concerns about increasing rates and payments to partners in the search engine business.
The declining trend of the search engine emphasized the uncertainty for investors about Google’s growth prospects and concern about the amount of $12.5 billion that will be used to purchase Motorola Mobility. For some investors, however, Google’s split move and the creation of a new class of shares without voting rights is a worrisome development. “We are concerned that this move will set a precedent that others will want to imitate”, says a manager of a teachers’ pension fund, the second largest U.S. pension fund.
A dangerous precedent
Google shares structure, which concentrates about 66% of the voting power in the hands of founders Larry Page and Sergey Brin and Eric Schmidt, the executive chairman, was followed by other Internet companies like Zynga, Groupon and Facebook. Creation of new shares without voting rights will allow the trio at the top to maintain control without risk of dilution when new shares are issued to compensate employees, acquisitions or for other purposes.
“It is a priority for them to maintain control. But maybe they should put their own capital behind this move, instead of taking the portion from existing investors”, says the fund manager. The Fund CalSTRS (California State Teachers’ Retire System), which has over $400 million in Google shares, is planning a dispute with Google on its splitting move, while the other companies might be tempted to follow the movement of Google leaders.
Some people wonder if the new Google shares without voting rights, which will have a separate symbol, would be traded at a discount to voting shares. This is typical for companies with two classes of shares.
In Google’s case, shares with voting rights is not much benefit for shareholders, since the founders of the company hold majority control. Therefore, the shares with voting rights are not as important as it should normally be, says a representative of a management school.
Declining revenues, declining stock
Google has assigned a cost per click (CPC) 12% lower in the first quarter of this year, following orientation to cheaper rates from mobile advertising, but also due to other factors. “The activity on the mobile phone market is becoming more problematic. Google has a share of about 90% of searches on mobile phones, but the income must be shared with phone manufacturers and carriers of data”, says an analyst.
The fall of advertising rates in the first quarter followed the decline of 8% in the fourth quarter of 2011. Analysts also say that uncertainty about Google’s plans for Motorola Mobility could put pressure on short-term actions. Friday, while falling, Google shares were traded at a volume three times more than the average. Google shares, which lost 9% after the fourth quarter results were published on 19 January, rose since then only 2%.
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