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Google prepares IPO -- but talks with Microsoft

Posted on: Friday, 31 October 2003, 06:00 CST

Google prepares IPO -- but talks with Microsoft, too

Software giant seen as unlikely to win search engine firm

By JOHN MARKOFF AND ANDREW ROSS SORKIN New York Times

Friday, October 31, 2003

San Francisco -- Wall Street is not the only one wooing Google. Microsoft is as well.

Google, the high-flying Silicon Valley Web search company, recently began holding meetings with bankers in preparation for its highly anticipated initial public offering as it was still engaged in meetings of another kind: exploring a merger with Microsoft.

According to company executives and others briefed on the discussions, Microsoft -- desperate to capture a slice of the popular and ad-generating search business -- approached Google within the last two months to discuss the possibility of a takeover.

While the overture appears to have gained little traction -- Google indicated that it preferred the initial offering route, the executives said -- it demonstrates the enormous importance that Google represents as both a competitive threat to Microsoft and as Silicon Valley's latest hope for a new financial boom.

Though seemingly spurned, Microsoft may still be interested in pursuing Google at a later date, according to an executive briefed on the discussions.

Both Google and Microsoft executives declined to comment.

Google, which was founded by two Stanford computer science graduate students in 1998 and quickly became one of the most popular Web sites in the world, has in recent weeks become the subject of intense speculation since it indicated to Wall Street that it hoped to sell shares of itself to the public sometime in the first half of next year.

Google's ability to stir Silicon Valley into a frenzy has also brought back memories here of Netscape, another start-up firm whose own initial public offering in 1995 helped touch off the dot-com explosion. Netscape once threatened Microsoft with a software browser that promised to be an alternative to its overwhelmingly dominant computer operating system.

Microsoft responded by significantly altering its business and adding its own browser as a free component of its Windows operating system, ultimately undercutting Netscape's business.

Google recently started wheedling down a long list of investment banks it approached earlier this month about underwriting the offering, which could be worth from $15 billion to $25 billion, the executives said. The company, which maintains tens of thousands of computers to help locate information on the Web almost instantly, has also explored the idea of a so-called Dutch auction, bypassing Wall Street and selling shares directly to investors. Such an approach could give it distance from scandal-plagued investment banking deals of the dot-com era as well as create a huge base of small shareholders.

The auction route is said to appeal to Google's founders, Sergey Brin and Larry Page, who are known for their fascination in pursing technical solutions to many different kinds of problems.

But it appears that Google is more likely to take the traditional path of using Wall Street to sell its initial offering. It is still toying with the idea, executives said, of using an online auction for a possible secondary offering as a way to allow its millions of users to have a better opportunity to buy its shares.

The company is considering selling about a 10% to 15% stake to the public, which is expected to raise more than $2 billion to be used to invest in the business and generate wealth for its employees, venture capitalists and early investors. Among the banks still competing for the business are Goldman Sachs, Morgan Stanley, Credit Suisse First Boston, Citigroup, J.P. Morgan Chase and Thomas Weisel Partners, the executives said.

Google has a clearly dominant position in Internet searching, which has served as the foundation of a fast-growing and highly profitable advertising business built around placing specific text ads close to Web queries on similar subjects. Its rapid revenue growth, however, has begun attracting large competitors such as Yahoo, which has acquired Overture, a leading search ad provider. While Microsoft and Amazon.com are both considering getting into the business, the growth in Google's Adwords keyword business has, at least for now, started to slow, according to a person with knowledge of the company's business.

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