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Google IPO could challenge traditions

/ Source: Financial Times

Google, the world's most widely-used internet search engine, could as soon as today announce an initial public offering that challenges the traditional way U.S. companies sell their shares to the public.

The company has been exploring ways to use an automated online auction system to help set the price for its shares and determine who should receive the stock, according to people close to the transaction.

After one of the most secretive build-ups to an IPO, however, the precise model to be used remains unclear. Even people directly involved in the expected transaction have been kept in the dark about Google's plans, according to one.

A Google share sale would be one of the largest U.S. initial public offerings of recent years, with estimates ranging from $2-$3 billion worth of shares offered. It would be the most anticipated stock sale since the 1995 launch of Netscape, a deal that sparked the internet gold rush on Wall Street.

Prompted by the excesses and scandals of the last internet boom, Google has been determined to find a different way of handling its own IPO, according to people close to the company.

"After seeing all the abuses that have happened on Wall Street, Google is fighting for the little guy," said Paul Bard, analyst at Renaissance Capital, which tracks IPOs. "They want to structure their offering in the best interest of individuals and avoid just taking care of big investors."

An auction would make sure that the company got the highest possible price for its shares, while preventing investment banks from handing the shares to their most favoured customers, a practice that brought accusations of corruption during the 1990s.

Typically, investment banks use a less transparent method for handling IPOs, analysing company data and canvasing investors and then selecting buyers who they claim will stick with the company rather than "flip" the shares.

Google is thought to have steered clear of using a pure online auction system, however, out of concern that intense demand from inexperienced retail investors would drive the stock to a sky-high, and unsustainable, level.

"The stock could go for $200 and then never again reach that level in the life of the company," one person said.

Instead, Google is likely to blend the auction method with a more traditional IPO, using online orders to help determine the price but not using this as the only gauge, this person said.

Google must release financial data this week to comply with U.S. Securities and Exchange Commission rules that apply to large privately held companies. It first moved its IPO preparation plans into high gear six months ago.

The company, known for its secrecy, has kept its intentions close to its vest and has ordered the banks that want to help arrange a sale to keep quiet as well. People familiar with the situation say the company's executives are doling out information sparingly to prevent leaks and test the skills of the bankers, who are not used to what one person called such "intense and immense disdain".