It looks like Google’s unorthodox stock split designed to make sure that CEO Larry Page and co-founder Sergey Brin maintain control of firm will cost Google more than $500 million. It’s been a year since they agreed to pay Class C shareholders if there was a difference of greater than 1% between the value of their shares and Page and Brin’s new Class A shares after 12 months. Based on recent trading, it looks like the difference is going to be closer to 2%.
Investors frustrated with Google’s ultra long-term perspective
Analysts point out that many investors have become frustrated with upper management’s unwavering belief that Google should be spending billions on projects ranging from driverless cars to diabetes-controlling contact lenses that will take years to reap profits if ever. Moreover, most of these projects have nothing to do with the firm’s core business of search and digital advertising. Investor frustration with out-of-control spending is one reason Google’s share price is about 2% below where it stood at the end of 2013, while the S&P 500 is up more than 11%.
$500 million payoff related to last year’s stock split
A year ago today, Google undertook a stock split to create a new category of “C” stock with no voting power. This means more Google shares can be issued without undercutting Page and Brin.
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Google Class “A” shareholders were angry, accusing the pair of self-serving, shoddy corporate governance. Google replied by saying there will not be a significant difference between the price of “C” and “A” shares because the co-founders already have majority control with the “B” shares. However, to settle a class-action lawsuit, the firm agreed to compensate Class “C” shareholders if the average price of “C” shares fell more than 1% under “A” shares through the first year of trading.
The difference is clearly over 1% and perhaps close to 2%, but the final figure won’t be announced for up to a month as Google works with outside financial experts to determine the exact payout based on a preset formula.