Fidelity buys up $550m stake in Google

The Fidelity mutual fund group snapped up more than one-quarter of Google's publicly-available shares last month - further denting the internet company's ambition of creating a democratic shareholder base where individual investors would play a major part.

News that one of the most powerful US investment groups had scooped up so many Google shares also provides the strongest indication that the controversial auction through which Google sold its stock was, in the end, conducted much like a traditional initial public offering, according to people familiar with the transaction.

Google had hoped to use the auction to let small investors obtain access to its shares, rather than big institutions like Fidelity, which normally have preferential treatment when stock in new public companies is allocated.

In a regulatory filing at the end of last week, the Boston-based mutual fund concern revealed that at the end of August its funds held more than 5.2m shares in Google, worth nearly $550m based on the company's latest share price.

That represented some 27 per cent of the shares that were sold at the time of the IPO on August 19, though it is only about 2 per cent of Google's total outstanding shares.

A strike by institutional investors in the days leading up to the auction led Google at the last minute to slash the number of shares it was selling to 19.6m, from a previous target of 25.7m.

Many big institutions had stayed away rather than lodge early indications of how they intended to bid in the auction. With fewer individual investors than expected placing bids, Google was forced to scale back its ambitions and cut the price it expected to obtain for the shares. That had opened the door to a number of big institutions effectively to set the final price of the shares by entering the process at the last minute and bidding for big stakes, according to several people close to the process.

It was unclear whether Fidelity bought its large block of shares at the time of the auction or amassed the stake through open-market purchases in the following days. However, with the Google auction clearly flagging and Fidelity wanting to amass a large holding, it had a powerful incentive to buy then, said one person close to the deal.

The dominant role apparently played by Fidelity at the time of the auction made the Google share sale far closer to a traditional IPO than the company had intended, one investment banker said. "This is the way stocks are normally sold, with one or two big anchor investors."

Fidelity is already one of the biggest investors in publicly-traded internet companies. Its 8 per cent stake in Yahoo, one of Google's main rivals, makes it that company's largest outside shareholder, while it also owns some 3.5 per cent of Amazon.com and 2 per cent of eBay.

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