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What's Google Minus $10 Billion?

Google (Nasdaq: GOOG  ) has done the impossible: It has turned the most anticipated IPO since the black tulip into an embarrassing disaster. OK, it's not really a disaster, but it sure as heck isn't going well.

Yesterday, the Securities and Exchange Commission shut its doors at the close of business without approving Google's registration statement -- a move that prevented the company from trading today. At issue is an interview that Playboy (NYSE: PLA  ) conducted with Larry Page and Sergey Brin, the two founders of the company, and the fact that this interview violates the "quiet period" that the SEC places on companies around various corporate events. Especially corporate events that involve equity offerings. This comes on the heels of the disclosure that Google had failed to properly register some 2 million shares that it had granted employees and others while it had been in its infancy. These are blocking and tackling kinds of problems, and they've cast a pall over an IPO that already had its detractors.

I would be quick to blame Google's advisors and lawyers except for one thing: It seems apparent that Google and its founders have gotten used to doing things their own way. The moment that management discovered that it had a registration problem (i.e., April), they should have taken the time to get it sorted out before pressing forward with the IPO. Ditto the violation of the quiet period. These were goof-ups, one perhaps more severe than the other, but both have been exacerbated by Google's assumption that it could simply go through with the IPO and deal with any consequences on the other side.

Welcome to being a publicly traded company, guys. The SEC doesn't give a hoot whether everyone else has licked the lug nuts on your cars for the last five years. They don't find the "don't be evil" schtick to be particularly endearing, they just want their rules followed. And you have failed to do so, miserably.

I've counseled from the outset that this was an IPO to be avoided, but not really for the reasons that have come up. Google priced itself at more than 300 times earnings, or at $35 billion. We once called such a valuation a "price-to-dreams" ratio, but although companies may like big, beefy share prices, they can't really control them, usually. But they certainly can control the price at which they offer shares in an IPO, and the price they chose was simply silly. For once the market seems to have gotten it right; both the price and the number of shares offered have been cut, as demand for Google shares has been at best tepid.

Here's what else makes me angry about this: Investment banks will now be able to point to Google's problems as a reason that companies should avoid using Dutch auctions to go public. This method cuts out most of the underwriting work that banks have to do with standard IPOs, lowering -- you guessed it -- the fees they garner. But Google's problems have little to do with the process and everything to do with a whole series of otherworldly bad decisions, made by Google, including the valuation the company granted itself in the first place.

In fact, the model for a "successful" IPO in the post-Netscape days has been a massive first day "pop" in price, even if the result is that the money that the company should have garnered to fund operations end up in other peoples' pockets. This is a bad thing. If Google manages to garner even $70 per share (below its current range), then its IPO will still have been substantially more healthy than any of these "hot," but ultimately destructive, launches. Google may not be the next Microsoft (Nasdaq: MSFT  ) , but it sure as heck isn't the (OTC BB: TGLO) either.

Bill Mann owns no shares in any company mentioned in this article.

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