The sale has been incorrectly reported in some media as a “secondary offering.” A secondary offering is when a large stockholder sells shares to the public. The proceeds go to the shareholder and not the corporation. In that case, the number of outstanding shares of stock does not change.
This is not the case with the Google sale. The issue when sold will increase the number of Class A shares by about 9%. To state that another way, existing stockholders will see their equity reduced as the new shares come on the market.
Math Riddle
For your math wonks, the precise number of shares offered is: 14,159,265. Does that number ring a bell? See the end of the column for the answer.There is tremendous speculation about what Google has in mind for the extra $4 billion it anticipates the sale will bring, especially since it is sitting on some $3 billion in cash already.
When companies issue more stock, it usually signals something significant is about to happen. In many cases, the company will make clear what it intends to do with the extra cash so existing investors know that the dilution of their stake will buy increased value for the company.
Other companies are more circumspect about what they plan to do with the extra cash and only hint the vaguest terms about their plans.
When you see a major stockholder selling a big chunk of stock, you need to ask why. There are many good reasons that have nothing to do with the value of the company. However, it is important to note when a number of “insiders” begin bailing at the same time.
More Information
For more information on insider trading, see this article.
Here is the answer to the math question. The number of shares Google plans to sell is 14,159,265. If you remove the commas and place a three and a decimal point in front of the number, you get: 3.14159265, which is pi, the ratio of the circumference of a circle to its diameter. You gotta love those Google folks!
