Google springs a surprise with new stock offer

WASHINGTON — Internet powerhouse Google revealed plans yesterday to raise up to $4.2 billion by selling more shares of stock, capitalizing on huge public interest in the company as it battles for online supremacy with rivals such as Yahoo! and Microsoft.

The announcement, almost exactly a year after Google's initial public offering, surprised analysts. The company's stock began trading Aug. 19, 2004, at $85 a share and is worth nearly $280 a share, giving it a total market value more than twice that of General Motors.

Analysts marveled at Google's move, noting that the already-wealthy company may be hoarding cash while hatching big schemes to buy an international company or new products, particularly as its rivalry with its big tech competitors heats up.

"I don't think they needed to do this at all, but the thing about Google is that they're always thinking ahead," said Scott Kessler, an analyst with Standard & Poor's. Google last reported it had nearly $3 billion in cash and cash equivalents; combined with the additional money, it could easily go shopping for ways to augment its popular search tools, he said.

The Mountain View, Calif., company went into business in 1998 as a tool to make searching the Internet simpler. Starting with its wildly successful word search, the company ventured into e-mail, satellite-map search, video search, image search and print-media search.

Google employs more than 4,000 people and makes nearly all its income from advertising associated with its search products, which last quarter yielded $342 million profit. The news of the secondary offering of 14.2 million shares sent the stock down $5.11 yesterday to end at $279.99.

"It's not a conventional company," and it must plan for fierce battles against its largest competitors, Yahoo! and Microsoft, both of which have more cash than Google, Kessler said.

In a filing yesterday with the Securities and Exchange Commission (SEC), Google underscored this point. Despite its relative youth, Google cast itself as a contender against much larger and more established rivals.

"We face formidable competition in every aspect of our business, and particularly from other companies that seek to connect people with information on the Web and provide them with relevant advertising," it said in its filing.

"We expect that Microsoft will increasingly use its financial and engineering resources to compete with us. Both Microsoft and Yahoo! have more employees than we do [in Microsoft's case, currently nearly 14 times as many]." With more cash and longer operating histories, both companies "can use their experience and resources against us in a variety of competitive ways, including by making acquisitions, investing more aggressively in research and development and competing more aggressively for advertisers and Web sites," it said in the filing.

Company officials declined additional comment, and in the SEC filing denied having specific or immediate plans to spend the cash for acquisitions.

Google rival Yahoo! has announced its intention to pay $1 billion for a 40 percent stake in Alibaba.com, a Chinese online commerce company. That could inspire Google to invest in a similar Chinese asset, such as search firm Baidu.com, which last week raised money in its own successful public offering, S&P's Kessler said.

Google retained Morgan Stanley, Credit Suisse First Boston and Allen & Co. as underwriters for the stock.