The Marketplace Report: Google's Big Stock Sale

Google announced plans to sell more than $5 billion in shares — a move intended to satisfy regulators ahead of Google joining the Standard & Poor's 500 stock index at the end of March. Alex Chadwick discusses the stock sale with Tess Vigeland of Marketplace.

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ALEX CHADWICK, host:

Back now with DAY TO DAY.

This week, Google announced plans to sell another 5.3 million shares. The Internet search giant says it needs to issue more company stock, because it's joining the Standard & Poor's 500 index tomorrow. The new shares will generate about $2 billion for Google to add to the $8 billion it already has in the bank. Marketplace's Tess Vigeland is here. Tess, why does Google have to issue more shares for this?

TESS VIGELAND reporting:

Well, what happens, and I've got a great explanation on this from Hugh Johnson over at First Albany, is that Google has to make sure that there are enough shares for all the institutional investors, who have index funds tied to the S&P. If you have a 401k or some other retirement fund, you've probably seen a lot of options, where you can buy into an index fund that is directly tied to the S&P 500.

Well, those are huge funds, and they have to own every stock that's in the S&P. Because they're so big, they need lots of shares. Now, if all those index funds start gobbling up massive amounts of Google shares, that could do a couple of things. First, it could make it really hard for other investors like you and me to hold Google stock, and it could also drive the price way up or way down.

So, by issuing more shares, Google is basically making it easier for index funds to buy what they need without completely distorting how the stock is doing.

CHADWICK: Well, if Google is issuing all this new stock, though, doesn't that make it harder for the company to keep up with price expectations that people have? I don't think Google quite is doing that, is it?

VIGELAND: Yeah, it's a very delicate balancing act, and the share price actually fell after this announcement. When a company issues more shares, it has to generate earnings or profits on all those new shares. For Google, in this instance, it means that they're going to have to make another $45 to $50 million this year based on what analysts are expecting from the stock price, but this stock issuance, as you already mentioned, generates a whole lot of cash for the company, about $2 billion, and Google says it's going to spend that on things like capital improvements and maybe even acquiring some other companies.

CHADWICK: Another tech sector story test today. Microsoft going out it again with anti-trust regulators in Europe. What's going on?

VIGELAND: Well, the European Commission basically is saying that Microsoft still hasn't done everything it has to do to comply with that big anti-trust ruling from a couple of years ago, so they're threatening to issue fines of up to $2.5 million a day, so they're in hearings this week. Microsoft is insisting it's going to do more to comply with the ruling. The Commission is expected to make a decision sometime in the next few weeks, but even that won't end the dispute, because regulators there are now looking into whether Microsoft's new operating system, Vista, presents some anti-trust problems as well.

And today on MARKETPLACE, we'll have more on all of this.

CHADWICK: Thank you, Tess Vigeland from MARKETPLACE, produced by American Public Media.

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