Taking stock of Google YouTube
Google’s mastery at financially savvy, shrewd strategic transactions continues apace: Google is acquiring YouTube for $1.65 billion in a stock-for-stock transaction.
Google proudly noted during the joint YouTube-Google conference call that the non-cash deal “made it cheaper for us.” YouTube shareholders also benefit from a “tax-free transaction,” Google said.
Why $1.65 billion? Is that the worth of YouTube? Not necessarily: Google used a “synergistic model” to justify handing over $1.65 worth of Google stock, not a stand-alone valuation. What will the impact of the stock-for-stock deal be on Google’s financial position? Not much. Google says the transaction will be only “slightly dilutive.
On Malik puts forth today that “Google Gains Pay for YouTube”:
if you started with the Monday (October 9, 2006) closing price, Google was in the hole for the week. But look at the hectic trading (trading volumes) on Friday and then on Monday – higher than average volume, it was in anticipation of the deal that stock moved up.
GigaOm commenter Charlie Sierra has a different take on the stock moves:
Are you misinterpreting the stock market’s signal here?
From the deal details, we know the total price is $1.65B in stock. The stock price and thus the number of shares to be issues will be set by a 30-day average ending two days before closing.
Thus if the market is pushing GOOG up, that means the number of shares issued to Youtube.com goes down, thus minimizing the dilution.
So the current GOOG owners are getting the benefit, at the expense of the youtubers. The market is correcting for the proper youtube price.
I also have noted that YouTubers in-chief “Chad and Steve,” are at risk in the all-stock deal, long-term, in “YouTube gambles big on Google stock”:
Google’s Q3 earnings report is due out next week and Google well undoubtedly inspire another round of hearty congratulations from Wall Street analysts (see “Wall Street to Google: Congratulations).
The Google magic, however, can not provide an indefinite shield against any number of known and unforeseen risks that may spark a sharp decline in its stock price: click fraud, copyright, ad price inflation, privacy…
The giddy YouTube founders “Chad and Steve” will not be laughing like school boys in a YouTube video if (when) that day comes.
Google noted during the joint Google YouTube conference call announcement that YouTube shareholder returns will move in tandem with the Google stock going forward after the deal closes, but believes in the power of joint "participation":
We’re also pleased that the YouTube shareholders want to become shareholders of Google and participate with the rest of us.