The Google Way

A few weeks ago, I was on a panel on the topic of Wi-Fi IPOs and the subject of Google inevitably popped up. There, one of the panelists, a top venture capitalist, opined that Google has demonstrated incredible arrogance with Wall Street. Then again, he said, Google could do so because it was "printing money."

No doubt Google is calling the shots. This is clearly evidenced by the fact that the IPO will be done as a Dutch auction, which is considered dangerous radicalism for traditional investment banks.

Yet, not all investment banks are caving, as seen with this week's move by Merrill Lynch (NYSE: MER) to opt out of the Google IPO, according to the most recent amended filing with the Securities and Exchange Commission.

So, why would Merrill Lynch leave? Well, a good reason is: Since it was not named as a lead underwriter, it would not get a bigger slice of the fees. And because of the huge retail base at Merrill, the costs of fulfilling the trades would probably swamp any potential profits. Actually, there may be others that decide to pull out as well.

One group Google really cannot play arrogant with is the SEC. In the latest IPO filing, the company has added more risk factors, such as the privacy concerns with Gmail and the expense of stock options.

Ironically, in the prospectus Google increased its negative view on the proposed Dutch auction. Here's something that should concern potential investors: "If your objective is to make a short-term profit by selling the shares you purchase in the offering shortly after trading begins, you should not submit a bid in the auction."

Also, the prospectus takes jabs at Wall Street, basically saying that analysts only care about managed earnings. Dissing Wall Street, however, can be a big mistake. To maintain a stratospheric market cap, Google must go beyond search and enter new verticals, which means scaling with acquisitions. In fact, competitors -- like AskJeeves (Nasdaq: ASKJ), Yahoo (Nasdaq: YHOO), and FindWhat.com (Nasdaq: FWHT) -- have much more experience integrating acquisitions. Thus, to pursue an acquisitions strategy, Google will need the help of its archenemy: Wall Street.

Fool contributor Tom Taulli is the author of The EDGAR Online Guide to Decoding Financial Statements. He owns shares in FindWhat.com.