Google doubts mount
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by David Shabelman
TheDeal.com
Posted 05:28 EST, 5, Aug 2004
With more and more initial public offerings falling by the wayside, weaker than expected demand for Google Inc.'s own blockbuster IPO is raising doubts the Internet search giant will go public next week.
Sources said Google's offering could be delayed until after the Labor Day holiday. While the company has never said when it would go public, published reports quoting people involved in the deal indicated it would be priced next week.
"If they would take my phone call right now, I would tell them to stop," said Ben Holmes, principal with Protégé Funds. "They've alienated everyone who can buoy this thing up. It's like you're driving toward a wall at 100 miles per hour and the wall is getting closer. Do you put on the brakes, or do you keep going because you believe you're stronger than the wall?"
But regardless of when Google does go public, there's little question the fanfare around the offering will be much softer than initially anticipated.
"Everyone I talk to is saying it could be a complete bust," said Tom Taulli, who runs the CurrentOfferings.com Web site. There's so much evidence pointing to weak demand I wouldn't be surprised to see a delay or a cut in the pricing." Google did not respond to an inquiry about the IPO.
Holmes said terms indicating the offering would be priced between $108 and $135 are scaring off many individual investors, while institutions are not pushing the offering because of a low fee-paying structure. In addition, Google is attempting to go public during August, when many investors are on holiday, he said.
Google should restructure the offering at a more normal price range, Holmes said, and offer more shares than the 24.6 million it has indicated. And the company shouldn't "bring it to market in August when half the people who would care are on vacation," he added.
Said Sal Morreale, who tracks IPOs for Cantor Fitzgerald, "I think it's being victimized by the uniqueness of the deal and the fact that the IPO market is just terrible. It's just a very bad environment."
One source with knowledge of the deal said even though interest in the offering has been "lukewarm," a delay could be even worse for Google because it would be an admission of just how poorly the offering is being received. "To start the process and abort it would be devastating," he said. "To not do it in the August time frame would be shooting themselves in the foot. There's a lot of inertia here. Even if you have to cut the price, you do what you have to do."
The loss of Merrill Lynch & Co., which dropped out as an underwriter in June, and of RBC Capital Markets and SunTrust Robinson Humphrey, which ended their participation late last month, also may be taking a toll.
As recently as last week, Morgan Stanley, one of Google's lead underwriters, approached a West Coast broker dealer firm about joining the syndicate to sell shares of the IPO, according to a source who asked not to be identified. The source said the Morgan Stanley representative indicated that providing 300,000 shares to the West Coast firm would not be a problem, but the firm decided to stay out of the IPO.
Morgan Stanley did not return calls seeking comment. Credit Suisse First Boston, the other lead underwriter, declined comment.
Holmes said that where once Google was expected to reinvigorate the IPO market, the opposite has occurred.
"I've never seen one this negative," he said. "They're taking a high-profile deal that everyone was excited about and was supposed to be a catalyst for the IPO market, but they have taken all of the incentive out for buyers and underwriters."
Taulli said there is very little reason for investors to bid on the IPO the first day amid so much uncertainty when it's just as easy to wait and see how it trades in the first week.
Meanwhile, quiet period restrictions leave Google powerless to defend itself against all the negative publicity that has been reported the past couple of weeks, he said. "They can't do anything to counteract all of the negative information coming out," he said.
Holmes said Google has not gone by the book on virtually anything to do with the IPO, so nothing it does about to the timetable of the offering would surprise him.
One source even speculated Google could somehow violate quiet period restrictions so it could get a "cooling-off period."
— Dennis Fitzgerald in New York contributed to this report |
