Google searches for investors through online auction

AnalysisThe Web's most popular search-provider, Google, plans to sell $2.7 billion in stock through a novel online auction in the most hotly anticipated initial offering of the year.

The planned stock offering promised to enrich the founders and early backers of the unconventional six-year-old firm, which posted revenue of almost $1 billion last year.

It would also set the stage for a new round of competition with Microsoft and Yahoo.

In keeping with its quirky nature, co-founders Sergey Brin and Larry Page promised in an "owners' manual" for prospective investors that Google's transformation to a public company would not change its culture.

In doing so, they repeated the company's mantra: "Don't Be Evil."

"Google is not a conventional company. We do not intend to become one," they said, noting that investors could be in for a bumpy ride, because they had no intention of smoothing results to match Wall Street expectations and would continue to invest in high-risk, high-reward projects.

In their letter to potential investors, Google's founders said they had broken with Wall Street tradition and would sell shares in the company through an auction to "minimise" the "unreasonable speculation" and "boom-bust cycles" that have characterised other IPOs.

From the online bids, Google plans to determine the highest price at which there is demand for all of the shares, called the "clearing price".

The offer price will be at or below the clearing price, varying at the discretion of Google's management.

Google, based in Mountain View, California, said it would seek to list either on the Nasdaq market or on the New York Stock Exchange.

Morgan Stanley and Credit Suisse First Boston were listed as lead underwriters for the offering, which has been expected to generate fees of up $100 million for investment bankers. Google, which turned its first annual profit three years ago and has been increasingly profitable in each successive year, said its management structure would continue to be run as a "triumvirate" by founders Larry Page and Sergey Brin and chief executive officer Mr Eric Schmidt.

For the first quarter of 2004, Google reported $389.6 million in revenue and net income of $64 million.

Net income doubled from the year-earlier quarter, it said.

Google receives more than 200 million search queries a day in 97 different languages, the company says on its website. It says that about half of these queries come from people outside the US.

The company derives almost all its revenue from advertising generated by search requests that directs users to sponsor sites.

To counter possible takeovers, Google said it would have a dual-class voting structure that would give its founders "significant control" over its fate.

The structure is common in the media industry, but rare among technology companies.

"This is an indication of the strength of the market," said Mr Knox Fuqua, fund manager at AAM Investments.

"We have been waiting for an IPO like this."