Here's why Google is about to execute its 1st stock split in company history

The Associated Press

FILE - In this Dec. 6, 2011 file photo, the Google logo is seen on the carpet at Google France offices, in Paris. Google is poised to split its stock the first week of April 2014 in an unusual way that could cost the company as much as $7.5 billion if it doesn’t work out the way management envisions. (AP Photo/Jacques Brinon, Pool, File)

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By MICHAEL LIEDTKE, AP Technology Writer

SAN FRANCISCO (AP) — Google is poised to split its stock using an unusual method aimed at keeping co-founders Larry Page and Sergey Brin in control of the Internet's most powerful company.

Here's the twist: A new category of nonvoting "C'' stock is being created to supplement the voting class of "A'' shares that have been trading under the "GOOG" ticker symbol since Google's initial public offering nearly a decade ago.

The majority of non-trading "B'' stock that has extra voting power will remain in the hands of Page, who is Google's CEO, and Brin, a top executive who oversees the company's experimental projects. The total number of Google shares will roughly double from the nearly 337 million outstanding as of March 17.

The Class C stock is inheriting the "GOOG" ticker symbol. The Class A stock will switch to a new symbol: "GOOGL."

Google's maneuver is expected to have at least one thing in common with other 2-for-1 stock splits. The share price will probably be cut in half beginning Thursday, the first trading session following the split.

This means Google's Class A stock, which has been trading above $1,100, will probably drop to somewhere between $500 and $600 beginning Thursday. Google expects the Class C stock to trade in roughly the same range, though that's less of a certainty, because some investors may discount the value of the nonvoting stock.

If there is a big spread between the trading prices of the Class A and Class C shares during the first year of trading, Google Inc. will be required to pay an estimated $300 million to $7.5 billion in cash or additional stock to help make up the difference. Google agreed to those terms to settle a class-action settlement alleging the stock split was set up to benefit Page and Brin at the expense of other shareholders.

Here are some answers to common questions about the stock split's origins and its potential repercussions:

—WHY IS GOOGLE DOING THIS?

Page and Brin originally had little interest in doing a stock split, even as Google shares soared from their IPO price of $85 in August 2004 to more than $700 in 2007. They reasoned a split would only cheapen the shares and attract speculators looking to make a quick buck. Page, 41, and Brin, 40, prefer long-term shareholders who are more likely to tolerate their strategy of making big bets on technology that may take years to pay off.

But the founders' perspective evolved as Google continued to issue more stock to fund acquisitions and compensate a company workforce that soared from about 2,300 employees in 2004 to 44,000 at the end of last year.

The growth in Google's outstanding shares threatened to undercut a system that Page and Brin had set up to ensure they have final say in all key decisions. Their control is based on their ownership of Google's Class B stock, which entitles them to 10 votes for each vote of Class A stock.

Combined, Page and Brin own virtually all of the Class B stock, 46.7 million shares. That gives them 56 percent of the company's voting power. Nevertheless, they were worried their votes eventually would slip below 50 percent as they sold more of their Class B stock and more Class A shares are issued to finance acquisitions and reward other Google employees.

—HOW DOES A SPLIT SOLVE THIS PROBLEM?

The addition of more than 330 million Class C shares provides Google with a new currency that won't undercut the power of Page and Brin. Their control of the company should remain intact because the Class C stockholders can't vote against them.