U.S. fund criticizes Google's IPO structure

/ Source: Financial Times

One of the largest U.S. pension funds has said that shares in Google should be priced at "a substantial discount" to reflect the fact that insiders will retain control of the Internet company following its initial public offering.

TIAA-Cref, the New York-based teachers' pension fund with $300 billion under management, said that corporate governance weaknesses would be reflected in the price it was willing to pay for Google stock. "There should be a substantial discount for corporate governance deficiencies," said Peter Clapman, senior vice-president and chief counsel for corporate governance. He declined to speculate on how wide the discount should be.

Google last week unveiled plans for an IPO that is expected to raise $2.7 billion and could value the company at more than $30 billion. The company said that while outside investors would be offered Class A shares, which carry a single vote, insiders led by Larry Page and Sergey Brin, Google's founders, would retain effective control of the company through their holdings of Class B stock, which carry 10 votes per share.

"This structure effectively disenfranchises outside shareholders," said Mr. Clapman.

His comments add to the general disapproval that Google has faced since unveiling its plans. Bob Monks, the doyen of US corporate governance activists, last week described the share structure as "stupid" and Google's founders as "poorly advised".

Not all investors agree, however, that the structure is a bad idea. At the weekend, Warren Buffett said he was "very pleased" to see Google's founders following an approach that he had adopted for his Berkshire Hathaway investment company.

Google's decision to structure its IPO as an auction leaves investors free to weigh corporate governance concerns against its strong growth prospects.

Dual class share structures are rarely seen in the US. While such arrangements are more common in continental European countries, they are on the wane following concerted criticism by institutional investors.

In regulatory filings, Mr. Brin and Mr. Page said the capital structure would enable them to take a long-term view and ensure that its internet search engine remained insulated from commercial pressures. They pointed out that some US media groups used dual class share structures to protect the editorial independence of their newspapers.

Mr. Clapman said TIAA-Cref would not be swayed: "Google is just another way to make money out of the internet. The public is entitled to one share, one vote."