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Google co-founders cash in

Google's triumvirate have made billions off stock sales since company went public, but there's still a lot more where that came from.

Last month, the 32-year-old celebrity co-founders of Google each sold more than $160 million worth of their company's stock.

That may sound like the ultimate jackpot to most people, but to Sergey Brin and Larry Page it was just another month in their billionaire-in-a-year lives.

Since the search giant went public in August 2004, Brin has sold about 6.5 million shares at a market value of $1.68 billion. Page has sold about 5.8 million shares at a market value of $1.4 billion, according to calculations from Thomson Financial. Chief Executive Eric Schmidt, who was brought in to run the company before it went public, has sold more than 2.1 million shares, worth more than $502 million.

News.context

What's new:
Google's co-founders sold shares of the Internet search giant last month, netting $160 million each.

Bottom line:
The timing and stock price may raise some eye brows, but the sales were scheduled in 2004, and they still own plenty of shares.

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Of course, there's nothing new about executives at hot tech outfits getting rich selling their stock once their companies go public. Microsoft's Bill Gates didn't become the richest man in the world because of his take-home salary. And Oracle's Larry Ellison didn't exactly fund his far-flung yachting adventures by cashing in a 401K plan.

But the speed at which the Google bosses have sold their stock and the eye-popping value of the sales have raised some eyebrows among corporate governance experts.

"Any time you sell stock it is an affirmative decision that your assets are better deployed somewhere else," said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "I just don't think that for the top leadership of a company, large stock sales send a particularly strong message to the other shareholders. I don't think it's a good thing."

He wasn't the only one to take notice, though he was more critical than Wall Street stock analysts who can take comfort in the fact that everyone who invested in Google early on has been amply rewarded by a stock price that has increased nearly 400 percent in 17 months.

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"The insider-selling cases are never a positive for the stock and sometimes they could be red flags," Piper Jaffray analyst Safa Rashtchy wrote in an e-mail response to questions. "(But) by itself, I don't think this sale activity is a major telling point, although it does appear to be quite large and is somewhat concerning."

Not too concerning, apparently. Rashtchy raised his 2006 price target for Google stock to $600 a share from $445 a few weeks ago.

Sales planned long ago
Why the nonchalance? One answer could be that so far there's little reason to think Google's bosses are doing anything unseemly or separating their interests from those of other shareholders. Yes, they've already made a gargantuan amount of money, and stand to make a lot more if Google continues to rebound from a --the biggest single-day drop in the company's brief history. The drop came amid a broader Wall Street decline and one day after it became public that Google is fighting a Justice Department request for random search data.

But the Googlers' stock sales were carefully planned before the search giant went public. Unlike insider sales that are made by company executives accused of unloading stock right before a suspected downturn, the Google executives' sales were decided long ago. They were coordinated under a schedule that allows insiders to pre-arrange the sale of a certain number of shares over a period of time.

The plan, called a 10b5-1, allows them to sell stock on a regular basis without appearing as though they are reacting to market movements up or down. When they announced that they were adopting the plan in 2004, Google said that after the sales were completed Brin and Page would each retain more than 80 percent of their current holdings and Schmidt would retain nearly 85 percent. That means they've just made a dent in their holdings. As of Jan. 9, Brin still held 32.4 million shares directly and indirectly, meaning he had sold about 17 percent of the shares he held around the time of the IPO. Page still held 32.9 million shares directly and indirectly, after selling 14.5 percent of his shares. And Schmidt held 12.7 million shares directly and through limited partnerships and a trust, reflecting the sale of about 14 percent of his total.

Cashing in

Google's management triumvirate sold shares faster and for far more money than executives at other big Internet businesses did in their first 17 months as publicly traded companies.

Jerry Yang, co-founder, Yahoo
IPO:
4-12-96
# shares:
0
Value:
$0
David Filo, co-founder, Yahoo
IPO:
4-12-96
# shares:
0
Value:
$0
Tim Koogle, CEO, Yahoo
IPO:
4-12-96
# shares:
297,500
Value:
$10.6M
Jeff Bezos, CEO, founder, Amazon
IPO:
5-15-97
# shares:
180,000
Value:
$23.15M
Meg Whitman, CEO, eBay
IPO:
9-24-98
# shares:
903,000
Value:
$137.12M
Pierre Omidyar, founder, eBay
IPO:
9-24-98
# shares:
1,738,000
Value:
$274.13M
Eric Schmidt, CEO, Google
IPO:
8-18-04
# shares:
2,137,602
Value:
$502.25M
Larry Page, co-founder, Google
IPO:
8-18-04
# shares:
5,757,656
Value:
$1,443.5M
Sergey Brin, co-founder, Google
IPO:
8-18-04
# shares:
6,459,627
Value:
$1,680.5M

Source: Thomson Financial

Google's meteoric stock rise has catapulted the two co-founders, who pay themselves $1 per year in actual salaries, onto the shortlist of America's wealthiest people. Forbes magazine estimates Brin and Page's net worth at $11 billion each as of September 2005 and ranks them both at 16th among the richest Americans. Schmidt, who also has cut his annual salary to $1, is ranked 52nd at $4 billion. Microsoft Chairman Bill Gates tops the list at $51 billion.

Google executives declined to comment beyond this statement: "At the time of Google's IPO, more than a year ago, all senior executives were asked to enter into 10b5-1 plans. Any sales by Eric, Larry and Sergey are simply a consequence of those required plans. They each retain a large proportion of their initial holdings in Google stock."

They've certainly made a lot more in the first 17 months at a publicly traded company than executives at other big Internet companies. Yahoo co-founders Jerry Yang and David Filo did not sell any company stock in the first year-and-a-half after that company went public in April 1996, while former Yahoo CEO Tim Koogle sold just less than 300,000 shares in that time at a market value of $10.6 million, according to Thomson Financial.

Over at eBay, founder Pierre Omidyar was busier, selling 1.7 million shares at a market value of $274 million. eBay CEO Meg Whitman sold more than 900,000 shares at a market value of $137 million in that time. And Amazon.com founder Jeff Bezos sold 180,000 shares with a market value of $23 million.

But the fact that the Google executives still own such a large percentage of Google shares significantly lessens any potential harm from the sales, argues Paul Hodgson, senior research associate at The Corporate Library, which researches corporate governance issues.

"I don't think anybody would raise any objection to the Google founders selling shares because they already have such a significant stake in the company," Hodgson said. "Their commitment to the company is still very plain."

And so far, shareholders do not seem to be complaining. Shares rebounded Monday from Friday's drop, rising more than 7 percent to $427.50. Google's $117 billion market capitalization now dwarfs Yahoo's market cap, which is $48 billion, eBay's $60 billion cap, and Amazon's $18 billion. Google even towers over AOL's parent company, media giant Time Warner, which has an $80 billion cap.

As long as Google keeps enriching its investors, it's unlikely many of them will complain that the guys in the executive suite are also cashing in.

"While the (insider stock sales) numbers are pretty incredible, so has been the increase in Google's stock price, and other stockholders have benefited from that increase also," Hodgson said. "There is nothing wrong with diversifying your holdings."

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