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Bank Of America Investment By Hartley Bernstein - Contributing ColumnistGoogle promises to break new ground when it comes to allocating shares in its impending IPO. Are IPOs about to march to the beat of a new drummer?

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Banking Investment May 14, 2004 (AXcess News) Google's search engine invites web surfers to click one button for a general search and another if they're "feeling lucky." Investors who plan to buy stock in Google's pending initial public offering may be among those "feeling lucky" these days.Recent events offer a look at two very different approaches to the IPO process, the ying and yang of new offerings so to speak.

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Investment Solution Strategic The old style, which flourished with the Internet boom of the late 1990s, was typified by the style of Frank Quattrone, who built his empire at Credit Suisse First Boston bestowing his blessings on wannabe public companies and doling out IPO shares to favored customers. "Hot IPOs," the ones that multiplied astronomically within hours of the offering, were a coveted commodity. Those shares were reserved for elite clients of the brokerage firms and those individuals who had, or were expected to, direct future investment banking business to the firm.

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Investment Banking Services That caste system fell into disrepute when the Internet bubble burst, and its principal architects soon became targets for regulators who suddenly awakened to the improprieties of the process. Some, like Merrill Lynch's Henry Blodgett and Salomon Smith Barney's Jack Grubman, wound up paying multimillion dollar penalties - significant sums, yet hardly a fraction of their spoils. A scant few others, most notably Quattrone, face criminal penalties.

Bank Investment In Quattrone's situation, criminal proceedings focused, not on inappropriate stock allocations, but on his efforts to destroy documents sought by authorities who were examining these questionable IPO practices. As is often the case, it was the cover-up that proved to be his undoing.

Alternative Investment Cast against the shadow of these IPO excesses is a new approach, as yet untested on a large scale. Google, the popular search engine company, plans a $2.7 billion initial public offering. Quattrone is gone, awaiting sentencing after a jury found him guilty. Credit Suisse First Boston, however, remains in the forefront of the IPO process and will underwrite the Google deal along with Morgan Stanley.

Online Investment Services But this IPO will look - and operate - quite differently from its dot com predecessors. Rather than allocate shares to preferred clients, or use them to curry favor with prospective business partners, Google stock will be up for grabs via a "Dutch Auction."

Accompany Essential Investment The Dutch auction gained its name from a method of selling tulips in the Netherlands. Individuals who want to buy shares enter their bids without knowing what price is being offered by others. The company then sets the final offering price and, theoretically at least, everyone who bid that price or less stands to get shares.In this case, investors apparently will be given an opportunity to enter bids within a range initially set by Google and its underwriters. Investors will be able to place those bids by phone, fax, or the internet.Online Dutch Auctions were introduced in 1999 by William Hambricht of W.R. Hambricht, a San Francisco investment bank, and so far have been used on a much smaller scale than anticipated by Google. To date, the largest of these online offerings was Andover.net, which sold $83 million of stock in December 1999, climbed to a high of $77.50 that month, and fell to about $10 by the April 2000.

Investment Company To some, that trajectory may evoke unpleasant memories of some of the overheated "hot" IPOs that employed more traditional pricing and allocation methods. Take, for example, V A Linux, one of Quattrone's heralded deals. Linux was priced at $30 for its December 1999 public offering, but soared to $320 during its first day of trading. When tech stocks crashed so did Linux, dropping to around 54 cents in 2002 before "rebounding" to its current level at approximately $2.

Investment Management Solution Google says it wants to go the Dutch Auction route because it will afford both large and small investors a chance to participate. But while the auction model may assure a level of fairness, it also creates unique risks. High bidders who feel they have paid too much may be inclined to sell quickly and limit potential losses. That, in turn, could lead to lower share prices.A Dutch Auction IPO has never been tested on this scale. That may be why Google has reserved the right to shift direction, disregard the results of the auction, and determine an IPO price based upon bids by institutional investors and other traditional market factors. In its search for a more equitable IPO, the search engine giant may move forward and break new ground, but it still could retreat into more familiar and comfortable confines.

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