There is a lot of buzz today about Google announcing a stock split. I just wanted to point out one small detail regarding this split. There isn’t one. Well, not really.
Yes the price of your current shares will be reduced by half and you will receive an additional share for each, but not the same type of share. The additional share has one slight difference. It carries no voting rights. The new shares will likely trade at a discount due to this inferiority. But there’s good news! This discount will probably be very small. That’s good right? Well, not really when you consider why.
There is a 3rd share class that is not listed. This share class carries 10 votes compared to the listed stock’s 1 vote and is held by the founders and other insiders. So these new shares that carry no voting power really aren’t that much worse since neither listed share class carries much clout when it comes to voting.
It all boils down to control. What good is owning a piece of a company if you have absolutely no say in how it is run? This means if you don’t like it all you can do is sell your shares and be careful not to let the door hit your butt on the way out. I will say however that the founders have been open about this structure being intended all along. In the co-founders’ own words:
“The main effect of this structure is likely to leave our team, especially Sergey and me, with increasingly significant control over the company’s decisions and fate, as Google shares change hands…
New investors will fully share in Google’s long term economic future but will have little ability to influence its strategic decisions through their voting rights…
Our colleagues will be able to trust that they themselves and their labors of hard work, love and creativity will be well cared for by a company focused on stability and the long term…”
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).