Google to Issue More Stock Before S& P Listing

By Sara Kehaulani Goo
Washington Post Staff Writer
Thursday, March 30, 2006

Google Inc. announced plans yesterday to offer 5.3 million shares of common stock, which could raise $2.1 billion and meet the expected demand for the company's shares when it is listed on the Standard & Poor's 500-stock index next month.

The shares will be offered at yesterday's closing price of $394.98 each.

Google said the money raised by the offering will be used to fund "general corporate purposes," which might include acquisitions, according to the firm's filing with the Securities and Exchange Commission made yesterday after the market closed. It is the Internet search giant's second effort to raise money off of its soaring stock price.

Since its initial public offering in 2004, when Google debuted at $85 a share, the company's stock has taken off. Last year, Google raised $4 billion on a stock offering with its shares priced at $279.99.

"It's perfectly logical they can take advantage of the recent rise in the share price and snap their fingers and pick up $2 billion," said Philip Remek, an analyst who covers the company at Guzman & Co. Noting the billions of dollars in cash that competitor Microsoft Corp. has piled up, Remek said technology companies "need to be a bit paranoid because product cycles change so fast and competition is so dynamic."

Few analysts expect Google to make a huge acquisition with the money raised in the stock offering. Instead, Google has said it plans to continue making small acquisitions in the numerous areas where it is developing products. The company said it "may use the proceeds of this offering for acquisitions of complementary businesses, technologies or other assets" but added that it had no commitments or agreements in place to buy any companies.

Several analysts who cover Google said that the move was a surprise but that it made sense given that the company will be listed on the S&P 500, which will probably drive demand for company shares from mutual funds and other investors. In addition, Google told analysts this month in a meeting at its headquarters that it would be making additional investments in infrastructure and research.

Mark Stahlman, an analyst at Caris & Co. who attended the meeting, said Google operates about 400,000 computer servers and 40 data centers, but the company said its growth last quarter was limited by its capacity.

"They will use funds the same way they have been using them," said Safa Rashtchy, a senior research analyst at Piper Jaffray Cos. "Their main goal is to deploy some big ideas -- some of which could take billion-dollar investments. I don't necessarily expect any major acquisitions."

Staff writer Yuki Noguchi contributed to this report.

© 2006 The Washington Post Company