Above the Crowd

Google Stock Option Re-pricing: Get Over It

February 1, 2009:

Prominent finance publications like the WSJ and the Motley Fool along with several bloggers have recently taken shots at Google with respect to their decision to re-price a boat-load of employee stock options.  Just to review the details, in their last earnings call google management stated that they would offer all employees with options that have strike prices above the current price the ability to trade in those options for new ones with a lower strike price.  This affects about 3% of the shares outstanding, and resulted in a one time charge of almost half a billion dollars.  The journalist that take issue with this suggest that shareholders are not nearly so lucky, and for the ones that bought in the $700 range they are drastically underwater — with no hope for a re-pricing themselves.  In general, I am sympathetic to this concern, but not in the case of Google.  Why are they different?

When Google went public, they insisted that investors participating in their shares would be explicitly second class citizens, and not by a little, by a lot.  These common shares carry 1/10th the voting power of those shares held by the founder and original shareholders.  To boot, management was remarkably transparent about this – almost to the point of bragging about their ability to remain in “control” of the company’s long term decisions.  This is just one of those decisions.  

So my reaction to anyone who owns Google stock and is sore over this decision — Get Over It.  You bought a stock where you gave up the ability to vote on such things, and if you don’t like it, sell the stock.  But you have no right to complain, as the rules were laid out from the beginning.

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