Google Dutch auction IPO declared a success

Contrary to some published views, the Dutch auction process of Google's initial public offering (IPO) last week was a success for the internet search engine and its investors despite being undertaken in a "horrendous" market, a legal commentator has claimed.

Bruce Mann, a senior partner at law firm Morrison & Foerster LLP and one of the pioneers of Dutch auctions as a former WR Hambrecht investment banker, said the search engine's IPO accomplished the goals of the company's founders and worked well for investors.

"If in the beginning there were irrational expectations about Google's pricing, that does not reflect adversely on the Dutch auction process," said Mann in a statement.

"Criticising the auction reflects an exaggeration of what went wrong and a lack of appreciation for what went right. Despite a bad market, the Google IPO was well priced and the shares were distributed fairly.

"Instead of focusing on the difficulties, we should take away lessons on how unforeseeable problems and unreasonable expectations were overcome."

According to Mann, the Google IPO shows that the market is smarter than any individual investment banker.

He compared the Google offering to many of the technology IPOs of the late 1990s, when in hours or days after its IPO a stock would rocket up to huge multiples of its initial price, or would open at an enormously inflated price only to collapse.

Instead Google closed the first day at an 18 per cent premium above the public offering price and rose another seven per cent on day two.

"The fact that there were no huge swings in price, up or down, in the immediate aftermarket shows the validity of the pricing system. This is a tremendous advantage of the Dutch auction process," he added.

Mann pointed out that two weeks ago more IPOs were withdrawn than in any single week since 2001, and that the internet index was down 20 per cent from when Google filed in July with a range of $108 (£59) to $135 (£74) when the deal was priced.

"If you reduce that initial price range by the 20 per cent decline in the market price of other internet companies, you'll find that the deal was priced near the low end of that range and closed the first day just above the middle of that range," observed Mann.

"Placing an IPO of this magnitude was in itself a tremendous accomplishment, and a credit to the way in which it was handled."