August 10, 2004
Yahoo! vs. Google: Happy Together? (Round Two in Search Engine Wars)
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As the day of its expected initial public offering approaches, search giant Google has settled two outstanding disputes with portal rival Yahoo! The settlement calls for Google to issue 2.7 million class A shares, which will be worth around $328 million if Google's stock prices at the mid-point of its expected range.
"We are pleased to have resolved these issues and with the terms of the agreement," said Steve Langdon, a Google spokesperson. A Yahoo! representative expressed a similar sentiment.
Google says it will have to take a one-time charge of between $260 million and $290 million in the third-quarter to account for the settlement. That will, the company says, result in its reporting a net loss for the quarter.
The most substantial issue laid to rest was a patent dispute over the business model and technology behind Google's AdWords program - by far the largest contributor to Google's revenues.
Overture Services, now owned by Yahoo!, filed suit against Google in April of 2002 alleging that Google infringed on U.S. Patent No. 6,269,361, "System and method for influencing a position on a search result list generated by a computer network search engine." Overture's patent protects bid-for-placement products as well as Overture's DirecTraffic Center account management system and tools. Google maintained the patent was "invalid and unenforceable."
The settlement reached today calls for Overture to dismiss the suit against Google and grant the rival firm a fully paid perpetual license to the patent, as well as to several related patent applications Overture holds. Google divulged these terms in an updated S1 filing with the Securities and Exchange Commission today.
The second dispute concerned the number of shares due under a branding and promotion agreement the two struck in June of 2000. In June 2003, Google says it issued around 1.2 million shares to Yahoo! under the terms of the warrant agreement, while Yahoo! contended it was entitled to more shares. Today's settlement sets aside this disagreement, as well.
The issuance of shares brings Yahoo!'s stake in Google up to 8.2 million shares, worth about $996.3 million if Google's stock prices at the mid-point of its range. Previously, Yahoo! owned 5.5 million shares, worth an approximate $668.3 million.
Google is reportedly preparing to make its initial public offering in the next two weeks. Widespread reports citing unnamed sources had pegged the IPO for this week, but glitches are said to have pushed things back. Google has registered to sell 25.7 million shares at a price between $108 and $135 per share. The company is taking bids in a Dutch auction at ipo.google.com.
The Associated Press last week reported that Google was delaying its IPO by a week because of logistical issues with its auction-based process. Meanwhile, Google earlier this month disclosed a legal snafu in the way it had issued more than 23 million shares to employees and consultants. And financial advisers and analysts have expressed concern that Google has overpriced its offering with its estimated selling price of between $108 and $135 a share.
"On the one hand, this clears up some questions for investors, but at the same time, the market has been bad, Internet stocks have been bad, and I think, so far, there's been lukewarm response in investing in Google," said Tom Taulli, co-founder of IPO-tracker Current Offerings.
The underlying question is whether this news, on top of all the other badness Google announced recently, will hurt an already aggressively priced offering. Yahoo! (an early investor in fledgling Google), can't really kick too hard, owning a stake in its most serious competitor - the settlement could net Yahoo as much as an additional $149 million at the high end of Google's expected IPO price range, and leave the company with a 4.1 percent stake in Google. After the IPO, Yahoo will also hold 4.95 million super-voting Google Class B shares, a 2.1 percent stake.
More interesting will be watching to see where the price goes in the day's following the IPO... there's a horde of investment bankers hoping it tanks so the whole Dutch-auction idea falls flat enough that they can get back to business as usual.
- Arik
Posted by Arik Johnson at August 10, 2004 09:49 PM | TrackBack
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