Preparing for the Google IPO Harvard Case Solution & Analysis

Preparing for the Google IPO Case Study Solution

The value of the company appears to be within the range of $25 billion to $50 billion and the cost of investment banks that will underwrite and sell the share of the Google Incorporation to the investors will costs 2.76% of the share price that Google intends to sell. Furthermore, the cost of loss due to under pricing can be estimated but from the period of 1990 to 2003, it is recognized that average increase in price of stock on first day after issuance is approximately 24%, so it can be said that the loss of 24% is the cost of under pricing which the company could incur if the company issue its share in the IPO as under priced shares. Moreover, after considering the above percentage of costs and loss on under pricing assumptions the costs, price of the stock at IPO and the estimated share price on the first trading day are mentioned below.

Strategy Adopted by Google Incorporation

The book building process adopted by the companies in which the IPOs are issued by the company at the price lower than the expected market price of the shares after the issuance of the share. However, the Google Incorporation has adopted advanced Dutch auction strategy in which the price of the IPO are greater than the price offered in the normal Dutch auction. Hence, the company has adopted this strategy to issue share at the price which is approximately equal to the market price of the company. Hence, this strategy adopted by the Google Incorporation enabled the company to reduce the cost of loss in share by not issuing the initial public offering below market price.

Furthermore, the average banking, legal and transaction fee charged by the investment banker is around 4% to 8% on the initial public offering by the companies but Google Incorporation has managed to negotiate this fees for under writing with the investment banks to almost 2.75%. Hence, these are the steps such as advanced Dutch auction and negotiating with the investment banker were taken by the Google Incorporation to reduce the cost of issuing share through initial public offering.

Recommendation

Google Incorporation was a privately held company and now going public by issuing share in the stock exchange market through initial public offering. Google had been a profitable company in past and has managed to cope up with the increase in growth rate of earnings as well as managed to increase the size of the company in terms of revenues and employees. The revolutionary increase in the revenue and earnings of the company indicated that the product and service offered by the company is widely accepted by the users which firms the ground for Google Incorporation for further growth in future prospects of business. Furthermore, the IPO offered by the company will enable the company to invest in advanced technology so that they can compete with its competitors i.e. Yahoo and Microsoft. Therefore, it is recommended to investors that they should bid in acquiring the shares of the company through the IPO as the company’s future prospects are strong enough to compete and there is a huge potential for the company to grow, which can increase the share price of the company enormously.............

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