Google's swagger is angering some Wall Street players-known for their own swagger, but apparently not receptive to the trait in others-to the point that it may negatively affect the Internet company down the road, according to sources.
Wall Street had been expecting Google's initial public offering announcement for months before it finally filed in April. And, as expected, Google chose to use an unusual "Dutch auction" feature for its $2.7 billion IPO, which limits the role and fees of investment banks in favor of direct bidding by investors. (The company has been notoriously tight-lipped, but the market buzz calls for a market capitalization of about $25 billion to $30 billion once the deal is complete.)
For a household name like Google with hefty revenues the Dutch auction route could pay off handsomely, particularly if retail investors get jazzed. The SEC filing gave investors their first peek at Google's financials. Last year, it earned $106 million on revenues of $962 million; in 2002, it earned $100 million on revenues of $348 million.
Even given the limited fees a Dutch auction offers bankers, there was a frenzy for a piece of the business. Since then, however, some Wall Street players have started to feel that a relative upstart is bullying them. "Google's trying to cram this down Wall Street's throat," says Tom Taulli, author and co-founder of Current Offerings, a research firm that tracks IPOs.
In fact, Merrill Lynch is already off the team of co-managers. Precisely why is a matter of debate. Two sources, both claiming knowledge of the deal, gave different versions of the dispute. One says that Merrill walked away because the potential fees it would earn were not enough to offset the costs. The other says that Google booted Merrill for violating rules dictated by Google at the outset. Sources could not confirm details of those rules, except to say they were "vague."
Google could not be reached for comment and a Merrill spokeswoman would not discuss the matter. That leaves Credit Suisse First Boston and Morgan Stanley as the two lead managers on the deal. Morgan could not be reached by press time and a CSFB spokeswoman says the bank could not comment due to the quiet period.
Such a falling out might mean nothing, but Taulli warns that Wall Street can be an unforgiving place if, say, a company needs help with a secondary offering or a merger deal in a few years.
He recalls a Wall Street version of the Golden Rule: the person with gold gets to make the rules. And Wall Street, he says, still has the gold. "They have the access to money and even if you hate them, you don't want to piss them off," he observes.
Others disagree over whether there will be much negative fallout for Google. Even for potential future deals, they say investment banks will be eager to play. "Never underestimate the short memory of Wall Street when fees are involved," says Barry Ritholtz, market strategist at money management firm Maxim Group. The industry is too competitive to forgo fees, he says.
Steven Tuen, co-manager of the Kinetics Internet Fund, echoes that sentiment-with one caveat. He says that Google should not have trouble courting Wall Street for future deals if it can maintain its big gorilla status.
As caveats go, that's a big one. Sources say Microsoft represents a major competitive threat with plans to enter the search-space marketplace. Yahoo!, eBay and Amazon.com are also mentioned as potential competitors.
Google acknowledges in its IPO prospectus that it faces heavy competition in all aspects of its business from tech companies as well as traditional media firms.