Google’s 2-for-1 stock split, which was first floated to investors almost two years ago but delayed by a shareholder lawsuit, has finally been approved by Google’s board on January 30, 2014, following a settlement of the lawsuit.
The split will create a new class of “C” stock that carries no voting power. The issuance date is set for April 2, with public trading beginning on April 3. One share of Class C stock will be distributed for each share of voting Class A stock owned as of March 27. In theory, the value of the current stock at $1,135 per share will be divided equally between the two types of shares or roughly $565 per share. But they will then trade separately with different ticker symbols. Class C shares will get the company’s existing “GOOG” ticker symbol, while Class A will change to “GOOGL.”
Back in 2012, this stock split plan was designed by Google founders Larry Page and Sergey Brin to ensure they retain control of the company despite owning an increasingly smaller percentage of its stock. Their special Class B shares, with ten times the voting power of the Class A shares, were initially meant to do that. Nonetheless, according to their letter to investors two years ago, that structure was slowly coming apart, as Google has used Class A voting stock to reward employees and finance some of its acquisitions during the past decade. This time, distributing a non-voting Class C stock will enable Google to continue doling out shares to its nearly 44,000 employees without further undermining the co-founders’ controlling power.
If Google’s split behaves similarly to other 2-for-1 splits, its trading price on the Nasdaq Stock Market would be cut roughly in half from its current level of more than $1,100, potentially making ownership of Google more accessible to small investors. However, Google’s market value will remain roughly the same at about $380 billion because it doubles the number of shares issued.
Some academic studies show that stock splits are a signal from management that they have confidence in the continued appreciation of their companies’ shares. The average stock which undergoes a split tends to outperform the market for several years after its split is announced. Maybe this is good news for public investors.
Not only will the split help cement the control of co-founders and allow more investors to afford the common shares, the split will also cause a short-term blip in two of the world’s most closely-watched market indices. The new Class C stocks will be added as members of the S&P 500 and 100 indices, while the existing Class A shares will also temporarily remain as a separate listing, S&P said. That means that for a few months, there will be 501 members of the S&P 500 and 101 in the S&P 100, but not for long. On June 20, S&P plan to remove the Class A shares from the indices, restoring order to the universe. In a statement, index manager at S&P Dow Jones Indices said it expects that “over time, the Class C shares will become the primary equity trading line for Google.”