Question

Please describe the financial requirements regarding stock and other finances of the acquisition of YouTube by Google in 2006.

Please answer with a 1000 word typed response. Please cite sources.

Answer 1

The YouTube deal represents a significant payday for Sequoia Capital, one of Silicon Valley’s most successful venture capital firms. Sequoia invested a total of $11.5 million in two separate rounds and was the only venture firm to invest in the company.

On October 9, 2006, it was announced that the company would be purchased by Google for US$1.65 billion in stock, which was completed on November 13. At that time it was Google's second-largest acquisition. The agreement between Google and YouTube came after YouTube presented three agreements with media companies in an attempt to avoid copyright-infringement lawsuits. YouTube planned to continue operating independently, with its co-founders and 68 employees working within Google.

Google's February 7, 2007 SEC filing revealed the breakdown of profits for YouTube's investors after the sale to Google. In 2010, Chad Hurley's profit was more than $395 million while Steve Chen's profit was more than $326 million.

The final price included $15 million in cash, 3,217,560 shares of Google Class A Common Stock, along with an additional 442,210 shares of restricted stock and warrants. The number of shares was determined by dividing the acquisition price, $1.65 billion, by an average value of Google stock over the last thirty days (this is a standard way of handling public company acquisitions). 12.5% of the stock is being held in escrow for one year.

Based on today’s closing price of $481.03 per share, the deal is already worth $1.775 billion to YouTube’s shareholders.

MOUNTAIN VIEW, Calif., November 13, 2006 – Google Inc. (NASDAQ: GOOG)
announced that it has closed its acquisition of YouTube, the
consumer media company for people to watch and share original videos.
In connection with the acquisition Google issued an aggregate of
3,217,560 shares, and restricted stock units, options and a warrant
exercisable for or convertible into an aggregate of 442,210 shares, of
Google’s Class A common stock. The number of shares of Class A common
stock issued and issuable by Google was calculated by dividing $1.65
billion less certain amounts (approximately $15 million) funded to
YouTube by Google between signing and closing by the average closing
price for the 30 trading days ending on November 9, 2006. 12.5% of
the equity issued and issuable in the transaction will be subject to
escrow for one year to secure certain indemnification obligations.