Google Stock Split: Nonvoting Share Move Does No Evil After All

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Google - Do no evilAccusations flew fast and furious in the hours after Google (GOOG) announced its first-ever stock split.

Criticizing the plan to grant existing shareholders one new Class "C" share for every Class A or B share they currently own, CNN called the plan "wacky." Reuters accused management of trying to maintain a "grip" on the company. CNBC even warned that the split could trigger a wave of selling.

Don't believe it. The truth is that if you were happy owning Google before the company decided to split its shares, you should be just as pleased post-split. Here's why:

Right now, Google co-founders Larry Page and Sergey Brin each hold approximately 8% of Google stock. But thanks to the dual-class share structure set up when the company IPO'd, the two control a combined 57% of Google's voting power. Add in Executive Chairman Eric Schmidt's 2.6% stake in the company, and the triumvirate controls a whopping 66% of Google's voting power.

So why all the fuss? Why split at all? Here's the thing: As part of the compensation Google pays its employees, the company periodically makes stock grants. The company also issues stock, on occasion, to serve as currency to pay for companies it wishes to acquire. Over time, the creation of new shares in this manner will tend to increase the total number of shares outstanding, and consequently erode the two-thirds majority that Google's leaders now possess.

Thursday's move aims to prevent this from happening by ensuring that new shares Google creates can be of the Class C, nonvoting variety. Simple as that.

What This Means to You

If you are an evil genius, patiently biding your time in hopes that one day Google will create enough new shares to give you a chance to buy them all up and oust Page and Brin from their jobs, your next line is: "Drat! Foiled again!"

If, however, you're anyone else, the stock split affects you not at all. Yes, your vote will count a bit less in future shareholder meetings. But since it never counted for much anyway, the difference is negligible.

Really, the only change worth noting here is this: The new Class C shares won't trade under the "GOOG" ticker. Maybe they should trade as "GOOSE" instead -- as in, if this change scares you, you're being a silly one.

Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google.

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Hammad Tauqeer

I have been trading GOOG for awhile now. I got alerted well before the volume started to pick up and because of this I was able to score a nice profit a few times. The report helped me understand the complete scenario and the pros and cons. It’s always best to buy before everyone else does. Check it out at vippennystocksite.com (Kindly, copy and paste the link in to your browser.)

April 20 2012 at 2:13 AM Report abuse rate up rate down Reply
jdykbpl45

If the split non voting shares are sold by the current owner, then the new owner gets screwed.
Having two classes of common stock is a tried and true way of screwing the public.
Wonder if Goldman Sachs came up with the idea?

April 15 2012 at 4:23 PM Report abuse +1 rate up rate down Reply
piaynwithmadness

where is the story about google being fined $25,000.oo for using their cars to steal citizens info as they drove by their homes? Google said "going back and getting rid of consumers private info would take too much time, so we wont do it."

April 15 2012 at 10:18 AM Report abuse rate up rate down Reply
lazyh

The stock split sounds like a good deal--for Page, Brin and Schmidt. For all others it’s a non-event at best, a blatant power grab at worst. The stock is down $25 p/s as I write this……

April 13 2012 at 3:58 PM Report abuse rate up rate down Reply