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Google IPO faces possible stumbling block

Google co-founders Sergey Brin, left, and Larry Page outside company headquarters in Mountain View, Calif. earlier this year.Ben Margot / AP file
/ Source: The Associated Press

Legal questions about an interview Google Inc.’s founders gave to a magazine are the latest in a string of developments that have clouded the online search engine’s highly anticipated initial stock offering.

In a seven-page article of Playboy delivered to some subscribers Thursday, co-founders Larry Page and Sergey Brin discuss the company’s rapid growth and even brag about how Google’s search engine has helped save people’s lives.

The snag is that the interview threatens to delay Google’s initial public offering because securities regulations restrict what executives can say while preparing to sell stock for the first time.

Google on Friday amended the risk factors outlined in its IPO filings to include the article, but said they would “vigorously” contest any claim that it violated securities law.

“The article presented certain statements about our company in isolation and did not disclose many of the related risks and uncertainties described in this prospectus,” the filing said.

“... if our involvement were held by a court to be in violation of the Securities Act of 1933, we could be required to repurchase the shares sold to purchasers in this offering at the original purchase price for a period of one year following the date of the violation.”

Nevertheless, the Mountain View-based company maintained that the 28 brokerages handling its unorthodox initial public offering began accepting bids Friday morning as part of the company’s plan to raise $3 billion.

Google needs the Securities and Exchange Commission to approve its IPO registration statement before it can complete the stock sale — a process the interview complicates, predicted Michael Zuppone, a former SEC attorney.

“I don’t want to rain on their parade, but I think this interview is going to cause regulatory concern. There could be consequences,” said Zuppone, now with Paul, Hastings, Janofsky & Walker in New York.

Securities attorney David Walek of Ropes & Gray agreed that the interview would be a serious problem for almost any company preparing an IPO. But he said Google may be an exception because of the widespread publicity swamping the company since its IPO filing in late April.

“There already has been so much written about this company that the SEC may conclude that this doesn’t really change the mix that much,” Walek said.

SEC spokesman John Nester and Google spokeswoman Cindy McCaffrey declined to comment Thursday.

Google and its insiders hope to sell stock at a price ranging from $108 to $135 per share. But the auction could change that price, particularly if most of the bids fall below the minimum $108 target.

The auction is expected to be wrapped up sometime next week, the company said.

Playboy spokeswoman Theresa Hennessey said the magazine conducted the interview with Page and Brin on April 22 — a week before Google filed its registration statement. None of Google’s top executives have granted interviews since the company’s IPO filing.

Securities attorneys contacted Thursday said they doubted the timing of the interview would matter to the SEC because Page and Brin knew then that an IPO filing was imminent.

“The SEC draws a distinction between what a company can control and what they can’t control, and this is something they could have controlled,” said Bob Clarkson of Jones Day in Menlo Park.

The SEC sometimes imposes a “cooling off” period when a company involved in an IPO releases any information that deviates from its IPO registration statement. The SEC is especially sensitive to promotional remarks while a company is gearing up for an IPO, securities attorneys said.

Regulators cracked down on in May when the company’s CEO, Marc Benioff, cooperated with an article published in The New York Times on May 9. After the article appeared, the SEC forced the San Francisco-based company to delay its high-profile IPO. completed its IPO six weeks after the article appeared.

The uncertainty raised by the Playboy interview is not the first difficulty Google’s IPO has faced.

The company has been stung by a backlash against the high target price, a legal settlement that will result in a third-quarter loss and a disclosure that management may have broken securities laws in 18 states by neglecting to register stock previously distributed to its employees.

Also, investors have been souring on tech stocks, causing some analysts to wonder whether Google would be better off postponing its IPO.

In the Playboy interview, both Page and Brin cover mostly familiar ground about Google’s history, the company’s unconventional business approach and their aspirations to make the world a better place.

They also express tremendous pride about Google’s accomplishments during the company’s nearly six-year history.

“Google is a useful tool in people’s lives,” Brin told Playboy. “There are extreme cases, we’re told, when Google has saved people’s lives.”

Brin said, “Someone wrote that he was having chest pains and wasn’t sure of the cause. He did a Google search, decided he was having a heart attack and called the hospital. He survived and wrote us.”