S&P 501: Google stock split changes the Standard

Standard & Poor’s, who manage the S&P 500 among other things, will officially have 501 stocks in their index as of June 20th. The change in standard comes from a change in heart: the S&P initially planned to dump one of Google’s stocks following a long awaited (and yet to happen) stock split, sticking to their policy of a one stock per company index, but they’ve changed their mind. That’s right… pretty soon Google will have two stocks in the S&P 500.

The index won’t change its name, maintaining that they still represent only 500 companies, but the move sets an interesting precedent.

sp501-google

Google’s stock split was initially announced in 2012, not ironically the year its market cap surpassed that of rival Microsoft. The move – designed to keep power in the hands of founders Sergey Brin and Larry Page – will culminate on April 20th and we’ll be watching the market for movement.

Wondering the difference between this new Google stock and the existing shares?

  • Google Class A Stock: the main Google stock currently traded on the market
  • Google Class B Stock: stock obtained by employees. Each share has 10X the voting power of one Class A share.
  • Google Class C Stock: the new Google shares to be offered publicly, with no voting rights, which will eventually become the defacto standard.

Class B stocks were initially introduced for the same reason the Class C stocks are now being introduced: to dilute outstanding stockholder voting power, allowing Sergey, Larry, and other Google execs to retain a voting majority despite now owning a minority of shares. It should be noted that when employees sell or transfer ownership of their Class B stocks, they revert to Class A stocks:

Our Board of Directors has authorized two classes of common stock, Class A and Class B. At December 31, 2009, there were 6,000,000,000 and 3,000,000,000 shares authorized and there were 243,611,368 and 74,160,683 shares legally outstanding of Class A and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted at any time at the option of the stockholder and automatically convert upon sale or transfer to Class A common stock. We refer to Class A and Class B common stock as common stock throughout the notes to these financial statements, unless otherwise noted.

The upcoming split will make many price sensitive investors very happy. Whereas now you would have to shell out over $1,000 big ones for a single share of Google Class A Stock, Google Class C Stock will likely be closer to $600 when they’re made available. But don’t be fooled: the value gets split too.

When Stock Indexes start bending their rules for your company, to keep you in their company, you know you’re doing something right. Google isn’t the only 800 pound gorilla in the tech industry, but did they just become the 801 pound gorilla?

Continue reading: