Google has resolved a shareholder lawsuit blocking a long-delayed stock split, clearing the way for the Internet search leader to issue a new class of nonvoting shares later this year.
The settlement announced Monday came on the eve of a scheduled Delaware chancery court trial that threatened to cast an unflattering light on Google co-founders Larry Page and Sergey Brin.
The class-action by the Brockton Retirement Board in Massachusetts and another Google shareholder, Philip Skidmore, alleged that Page and Brin engineered the stock split in a way that unfairly benefits them while shortchanging the rest of the company's shareholders.
Google denied the allegations and maintained that the proposed stock split announced 14 months ago would benefit shareholders by ensuring that Page and Brin would preserve the power that has enabled them to make the same kinds of bold bets on technology that have helped increase the company's market value by more than $260 billion during the past nine years.
The split calls for a new class of "C" stock with no voting power to be issued for each share of an existing category of "A" voting stock. The structure is designed to ensure that Page and Brin retain control over the company, even though they currently own only about 15 percent of Google's outstanding stock, combined.
Page, Google's CEO, and Brin, an executive who oversees special projects in the company's secret X Lab, hold 56 percent of Google's voting power through a "B" class of stock that gives them 10 votes per share. By creating a new class of nonvoting shares, Google will be able to keep rewarding other employees with more stock and financing potential acquisitions of stock without undermining the voting power of Page and Brin.
The co-founders began pushing for the stock split three years ago, according to court and regulatory documents. Google shareholders approved the split a year ago, but the lawsuit had prevented the company from issuing the new shares.
The settlement still requires final court approval.
The legal truce will require Google Inc. to compensate owners of the new class of stock if it's worth less than the existing class of stock after one year of trading.