Google is creating an entirely new class of share and issuing them to shareholders as a stock dividend. On April 2, 2014, Google will avoid the typical split of simply doubling the number of existing shares (which would halve the value of each share), and instead split their stock in a rather unusual way.
Why is GOOGLE doing this?
Google is trying to protect their super-voting stock via this unusual split.
Google has three classes of stock with different voting rights on corporate events (like Board of Directors elections): Class A (1 vote each) is what has traded since the company went public; Class B (10 votes each) is primarily owned by founders and insiders; and Class C (0 votes each) is the new kid on the block being issued through the share dividend. Tip: Class C will trade under the old symbol (GOOG) going forward.
If Google did a typical split, they’d double the voting power of the A shares relative to the B shares, which would dilute the founders’ voting power. The founders don’t want that. Instead, the company is issuing the new Class C, which comes with no voting power. The way Google handled their split, the value of the two public classes (A and C) should be approximately the same, since the effective voting power of the Class A shares is virtually zero. As it stands, the company’s two founders, Larry Page and Sergey Brin, own the majority of the Class B stock and it looks to stay that way. Together they control 56% of the votes, impacting non-paltry decisions like who comprises the Board of Directors.
When companies initiate splits, it’s usually to make their shares more affordable to regular investors. Typically, when a company does a 2-for-1 stock split, they announce that for every one of your existing shares, you now own two shares. Same class of stock, they just double the number of shares that are in public hands. But each share is then worth half as much. (It’s like slicing a pie into 8 pieces instead of 4.) At $1,000 per share, Google was too expensive for many investors to buy for their portfolio. But following the split, Google share value will halve, making it more affordable.
By issuing non-voting stock, the company can make the value of each public share more affordable to everyday investors with twice as many shares available, while not changing the voting power of the founders because the new shares have no voting power.
The technicals of the transaction:
The class of shares trading on or before April 2 (known as Class A), will change their trading symbol from GOOG to GOOGL. When the markets open on April 3, these shares of stock will trade under the new, 5-letter symbol.
- If you owned the stock on March 27, 2014, you will also receive the new class (Class C). This new class will trade under the old symbol, GOOG.
- If you bought GOOG between March 28 and April 2, you own the Class A shares, but you will not receive the special dividend.
- If you buy GOOG after markets open April 3, you’re buying the Class C shares.
How SigFig Portfolio accounts for this transaction:
Synced Portfolios should update automatically by their brokerages. Class A shares should list as GOOGL and the stock dividend Class C shares as GOOG. To double-check this, go to Account Settings to verify the last synced time. If your account synced on login, but your portfolio does not list the shares correctly, it is possible that brokerages haven’t yet added the shares to the synced data feed; this may take a day or two.
On Google Split Eve (April 2-3), manual portfolio users will have their tickers updated to GOOGL and SigFig automatically added an equal number of GOOG (Class C) to the manual portfolio. We tried to make it easy for most users, but a few users may have to make some adjustments.
Here’s where the split gets a little hairy in your manual portfolio:
- If you bought Google stock between March 28 – April 2, delete GOOG to realign the value of your portfolio. You would not be entitled to the Class C stock, so your portfolio value will overstate your actual portfolio value.
- If you owned Google stock on March 27, but sold it between March 28 – April 2, manually add GOOG to your portfolio. We did not add shares of Class C and will thus understate the value of your portfolio.
- If you have a manually entered lot, add the appropriate date to the new GOOG holding. Your previous lot will be updated to reflect GOOGL.
- If you have GOOG on your Watchlist, we have made no changes, so you are now following the Class C shares.
For more detail from Google’s Investor Relations, click here: