Search king Google, Inc. has finally completed its long-awaited 2-for-1 stock split. As a result, one non-voting Class C share will be issued in lieu of each Class A and Class B share. Class A shares carry a single vote while non-trading Class B shares (held by founders Brin and Page) carry 10 votes each. The Class A and Class C shares will trade under the tickers GOOGL and GOOG , respectively.
The move involves an increase in the number of shares outstanding and adjusting the share price accordingly. This lowers the price while keeping the underlying value of the company constant.
In Apr 2012, Google proposed the 2-for-1 stock split by creating non-voting Class C shares. However, some shareholders were unhappy about the terms of the stock split and took the matter to court, following which Google agreed to two concessions. The first restricted the founders from selling any Class C shares unless they sold an equal number of Class B shares. The second was an undertaking by Google to compensate Class C shareholders for the difference in Class C and Class A share prices during the first year of trading.
Accordingly, if there is a big price difference between Class C and Class A shares, Google will pay up to $7.5 billion to cover it.
The principal reason for the stock split is to safeguard the founders' control and make the shares more affordable. The resultant increase in the number of shares would help Google with employee compensation and major mergers and acquisitions.
In recent times, other companies have also announced stock splits. These include UnderArmour, Inc. ( UA ) and Westlake Chemical Corp. ( WLK ), both of which announced a two-for-one stock split, and The Andersons, Inc. ( ANDE ), which declared a three-for-two stock split.
We believe that Google's stock split news will add to favorable market sentiment as most of the Class C investors without a right to vote will get a chance to earn from Google's success in the future. Following the news, the share price rose 2.74%. However, being part of the major indices, some volatility in Google's share price may be expected.
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