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Ask a Fool: GOOG vs. GOOGL Shares

In this edition of The Motley Fool's "Ask a Fool" series, Motley Fool One analyst Jason Moser and Motley Fool Stock Advisor analyst Brendan Mathews take a question about Google  (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) . A reader asks: "Should I sell GOOG tomorrow and buy GOOGL? Am I missing something?"

In short, Brendan says no. While Google's Class A shares (i.e., GOOGL) have superior voting rights to Class C shares (i.e., GOOG), it's probably not worth selling one class to buy another. It could very well trigger tax consequences, and it will definitely incur trading costs. The two classes of shares won't always track each other perfectly, perhaps with the Class A shares trading at a slight premium, but Brendan doesn't believe the effect will be big enough to warrant swapping the different share classes. Jason points out that insiders already control the company via super-voting Class B shares, so the issue of voting rights is largely irrelevant.

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Comments from our Foolish Readers

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  • Report this Comment On April 15, 2014, at 10:37 AM, nancy821 wrote:

    You have already lost 15 dolalrs a share by not selling your class c shares and buying class a, already many times what a commission would cost you but why not take it a step farther and short sale goog class a and use the money to buy googl class c? Then your locked into a profit of whatever the spread is regardless of whatever the stock does. Seems like a trade with minimal downside because the spread should not reverse and have the class c shares become more valuable so you have limited potential downside and a lot of upside.

    The things that could mess with this trade are if google the company issues a whole bunch of c or a shares and dilutes the current dynamic. Its interesting that you thought that they would issue class a shares in this case? Wouldn't they issue class c because if they issue class a then they dilute the voting rights? The other thing that scares me is that by my calculations they will have have to pay 24 billion in one year if there is a 5% difference in the stock price. They will probably do this using stock and at this point they will probably have to use class a shares to make up this differential so class a will probably take a big hit at this point. I'm leaving this as a short time trade so I can get my money while the spread widens and then get out before sergey and larry play more games! Also what do you think about the nasdaq delisting the A shares later this year while the other exchanges don't??

  • Report this Comment On April 16, 2014, at 2:55 AM, WineHouse wrote:

    The people who really benefit from the "split" are the holders of Class B shares. With ten votes per share, they couldn't really sell any of those shares because then they would lose control of the company. NOW they still have all their voting power, but they also have an equal number of class C nonvoting shares. So what they got was really liquidity for themselves. Now they can sell and realize up to almost half the value of their holdings for diversification, charitable contributions, estate planning, buying cornflakes, whatever, without losing a single vote in the process. That's having your cake even after gobbling it up. If they want even more liquidity, they can just split the shares again.

    So it's really just about getting some cash out of their holdings without ceding their control.

    The Ford Motor Company did a "recapitalization" about 20 years ago that reduced the dollar values of all the shares but paid cash to all the shareholders. That, too, was done to enable the Ford family members who held the controlling interests in the company to get cash without having to actually sell supervoting shares.

    So much for the concept of a publicly traded company. And so much for open honest pure capitalism.

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Brendan Mathews

A Fool since 2005, Brendan is a research analyst on The Motley Fool's Stock Advisor newsletter. He enjoys scouring financial statements, pontificating on competitive advantage, and any outdoor activity.

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9/1/2015 4:00 PM
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