SAN FRANCISCO - Google Inc. makes raising money look as easy as pi.
A year to the day after its initial public offering, the Internet giant said yesterday that it would raise up to $4.2 billion through a secondary stock offer, leaving investors and analysts puzzling over how it plans to spend the cash.
In typical Google fashion, the offering included a bit of geek humor. Google said it would issue 14,159,265 shares. That's a nod to pi, the infinite number representing the constant ratio between a circle's diameter and circumference. Pi's first nine digits are 3.14159265.
Google filed a registration statement with the Securities and Exchange Commission to issue up to 14.8 million additional shares of its stock, which has more than tripled in price since its August 2004 debut. In addition to the 14.2 million public shares, Google's underwriters - Morgan Stanley, Allen & Co. and Credit Suisse First Boston - have the option to buy another 600,000 shares.
If Google raises the maximum amount during the offering, which has not been scheduled, it would have more than $7 billion in cash on hand. The company said in its SEC filing that it planned to use the money for capital expenses and potential acquisitions, but had not committed to any particular deal.
A spokesman declined to elaborate.
Google's reticence to discuss plans for the proceeds caused analysts to speculate about a wide range of targets that might lessen the search-engine company's reliance on the Web ads that generate 99 percent of its revenue.
"It is a signal they're going to acquire companies," said Philip Remek, an analyst with Guzman & Co. "I think it's a very necessary thing for them to do."
Potential buy-out candidates floated by analysts included TiVo Inc., Chinese Web-search engine Baidu Inc., privately held Internet phone company Skype and Internet infrastructure firms VeriSign Inc. and Akamai Technologies Inc.
Analysts said Google's most likely move is to buy its way into developing international markets such as Russia and China, where other Internet giants are spending heavily. Yahoo Inc. said last week that it would invest $1 billion in Chinese Internet portal Alibaba.com and merge their China-based operations.
Another possibility is a move into telecommunications systems, such as technologies for making phone calls over the Internet. Skype is an early leader.
Google has typically done small deals, such as the recent acquisition for an undisclosed price of Android, a secretive startup developing software for wireless devices.
Anthony Noto, a Goldman Sachs analyst, said in a research note to clients that Google was issuing the stock "to have a more sizable war chest versus large, well-funded competition." But he said he expects Google to spend no more than $1 billion to $2 billion on any deal.
One concern for some investors: If Google buys any public company, that company will almost certainly drag on Google's earnings because it's one of the most profitable businesses anywhere.
"It's good to diversify their revenue," said Martin Pyykkonen, an analyst with Hoefer & Arnett. "The open-ended question is, can they buy anything that's not very dilutive, considering they're among the top tier of profitability in the Internet space?"
In any case, analysts lowered their profit estimates for 2005 and 2006, since the increase in shares will dilute the earnings-per-share.
Google shares fell $5.11, or 1.8 percent, to $279.99, their lowest closing price since June 16. The stock has fallen 10.8 percent from the record closing high of $313.94 on July 21.
It's still more than triple Google's IPO price of $85. Given the stock's meteoric climb - and the historic volatility of technology stocks, few were surprised that Google elected to build up its cash reserves. Scores of technology companies still sustain themselves with the cash raised during the boom of the 1990s.
The nod to pi isn't the first math joke Google sneaked into a SEC filing, which typically is a stuffy document.
During the filing for its intial public offering, the maximum amount of money the company said it could raise, $2,718,281,828, was a tribute to the irrational number "e," or 2.718281828 which is used in calculus to solve problems involving rates of growth or decay.
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