This is not the usual yada yada…
— Google’s chief legal officer, in a footnote to the founders’ letter sent out with Google’s latest results. The company’s jigged around its stock structure:
As Larry and Sergey note above, the stock dividend we are announcing today will have the basic effect of a two-for-one stock split. Each holder of a share of Class A or Class B common stock will receive one share of the new non-voting Class C capital stock. So after the dividend, a stockholder who currently owns one Class A share with a single vote will continue to own that share plus one Class C share without a vote.
The Class A shares will continue to trade under the “GOOG” ticker symbol, while the Class C shares will trade under a different ticker symbol, so stockholders will be able to trade these shares, just as they can with Class A shares today. Except for voting rights, the Class C shares will have the same rights as the existing Class A and Class B shares. As is typically the case with stock splits, the Class C stock dividend will be tax-free.
Note they don’t quite say that it is a stock split. It isn’t (though it took us in initially). Google investors will get a dividend in the form of this new, non-voting stock.
OK, here’s a flavour of what Larry and Sergey said:
It’s important to bear in mind that this proposal will only have an effect on governance over the very long term. In fact, there’s no particular urgency to make these changes now—we don’t have an unusually big acquisition planned, in case you were wondering. It’s just that since we know what we want to do, there’s no reason to delay the decision. Also note that there will be no immediate change in votes, because everyone will still have the same number. In addition, Eric, Sergey and I have all agreed to “stapling” arrangements so that, above set thresholds, if our economic interest in Google were to decline, our votes would as well. We also have provisions to ensure all shareholders are treated fairly from an economic perspective…
The proposal we announced today is consistent with the governance philosophy we articulated when we took the company public, as well as the trend for newer technology companies to adopt strong dual-class structures. We believe that it will provide great competitive strength—insulating Google from short-term pressures, whatever the source, for a long time to come, while also giving us more flexibility around equity grants.
Etc., etc., etc.
Laudable in its stand against short-termism, you might say. Well, we’d say the aside about no huge acquisitions reads a bit like Mark Zuckerberg’s swearing off of similar following the Instagram deal this week… and Brin and Page also seem to have caught the Zuckerberg bug when it comes to ensuring an iron grip on voting control of Google.
That’s what they effectively mean by taking the long-term decisions etc. Which is fine if that’s what it takes to make great Google products (we’d note Google+ had no mention in these results). But it is just worth noting the caveats in the stapling arrangement.
Back to the chief legal officer:
One thing to keep in mind is that immediately after the Class C dividend, all stockholders, including Larry, Sergey and Eric, will retain the same voting interest they hold prior to the dividend. In addition, Larry, Sergey and Eric have agreed to subject their shares to a Transfer Restriction Agreement. This agreement will maintain the same link between their voting and economic interests that exists today, even if they sell some of their non-voting Class C shares. If the founders or Eric wish to sell or transfer their non-voting Class C shares, a “stapling” provision in the agreement requires them to either sell an equal number of Class B shares, or convert an equal number of Class B shares into Class A shares. No other stockholders will be subject to these restrictions upon the transfer or sale of their shares. The stapling requirement will terminate as to the founders when their collective ownership falls below a certain threshold, and as to Eric when his ownership falls below a certain threshold. Further details of the Transfer Restriction Agreement will be included in our proxy, but it’s important to note that the stapling provision is designed so that, subject to the thresholds, the votes held by the founders and Eric will be reduced proportionally as their economic interest in the company declines.
As for the financials themselves… revenues up 24 per cent year on year (a beat), the advertising metric, cost per click, down 12 per cent on the year.
Update — More good points from Kid Dynamite, who points out this bit we missed…
These [Class C] non-voting shares will be available for corporate uses, like equity-based employee compensation, that might otherwise dilute our governance structure