Google Inc. opened an unprecedented $3 billion electronic auction for its shares this morning by vowing to fight any court challenges to its IPO stemming from a Playboy Magazine interview of its founders Sergey Brin and Larry Page.
The Securities and Exchange Commission could have forced Google to delay the IPO because of rules prohibiting hyping of a stock just prior to its sale to the public. But according to a person familiar with the decision, the SEC has opted not to delay the offering.
Instead, the source said this afternoon, the agency required Google to make three disclosures in order to proceed: First, that the company tell investors it may have violated the quiet period, exposing Google to shareholder lawsuits if the stock price falls. Second, that Google correct certain inaccuracies in the Playboy article, including data on how many people visit Google's Web site in a day. Third, Google was required to incorporate the entire Playboy story as an attachment to its prospectus, an unusual move that potentially makes issuers and underwriters liable for its contents.
Google made each of those disclosures in a public filing Friday morning. The company's compliance with the SEC request does not preclude the agency from eventually finding that Google in fact did violate the quiet period, the source said. Instead, the Friday morning disclosures by Google merely allowed the offering to proceed according to the company's timetable.
Meanwhile, at 9 a.m. today more than two dozen investment firms began accepting bids for Google stock, which the company has estimated are worth between $108 and $135 per share. Google said it plans to set the price for its IPO sometime next week after it closes the auction.
In it's filing with the SEC today, Google said, "The article states that more than 65 million people use our search engine daily. We believe that this number represents monthly, not daily domestic visitors data as compiled by a third party research organization."
"We would contest vigorously any claim that a violation of the Securities Act occurred," Google continued in its SEC filing. "We do not believe that our involvement in the Playboy Magazine article constitutes a violation. However, 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 of this offering at the original purchase price for a period of one year following the date of the violation."
Google said the interview took place in April 2004 just prior to the filing of its IPO with the SEC.
"The article presented certain statements about our company in isolation and did not disclose many of the related risks and uncertainties described in the prospectus," Google said. "As a result, the article should not be considered in isolation and you should make your investment decision only after reading this entire prospectus carefully."
In the new filing, Google said: "Information about Google has been published in an article appearing in the September 2004 issue of Playboy Magazine and entitled, 'Playboy Interview: Google Guys.' The text of the article, which is included in this prospectus as Appendix B, contains information derived from an interview of Larry and Sergey conducted in April 2004."
Google said the article contains a number of inaccuracies that it sought to correct with its new SEC filing this morning. For example, Google said the article stated its new Gmail service offered more than 200 times more storage than its competitors. "Competitors have substantially narrowed the gap," Google said.
Also, the article said Google has about 1,000 employees. The company said it employs 2,292 employees.
The Playboy Magazine interview is the latest in a series of legal problems Google has encountered as it seeks to make the transition from a fast-growing private firm to a public company.