The Amazing Shrinking Google IPO

Google slashed the value of its initial public offering almost in half Wednesday as a cool reception by investors, regulatory problems and a poor market for Internet stocks dogged the search engine giant on the eve of its market debut.

Google cut the range of its IPO price to $85-$95 per share from $108-$135 per share and the number of shares that shareholders plan to sell to 5.5 million from almost 12 million. The cuts mean Google will raise about $1.8 billion in the sale, down from an originally expected $3.5 billion.

Even at its reduced price, the Google IPO is expected to be the largest ever for an Internet stock.

Google said it asked the Security and Exchange Commission to declare the registration statement effective Wednesday at 4 p.m. ET, a day later than planned, with the hopes of trading beginning on Thursday.

The SEC is expected to provide a formal OK late Wednesday for Google to begin selling shares, a person familiar with the deal told CBS MarketWatch.

"The auction remains open, and Google and the underwriters expect to close the auction when the registration statement is declared effective," Google said in a statement.

In a message to potential investors, Google said bids, "may be accepted by the underwriters in as little as one hour after the notice of effectiveness of the registration statement is sent to you."

The discounting move follows a familiar script in the IPO market in August, with 10 of 16 IPOs this month pricing below range, according to Thomson Financial.

Google also ran into a swooning Nasdaq, last-minute regulatory wrinkles, and the psychological barrier of an IPO priced over $100 vs. the usual IPO price level of $10-$30.

"I still plan to buy shares once it goes public," said Ken Cusse, an individual investors from Rochester, N.Y. "They have lots of cash, low expenses, and I don't know if anybody can catch them."

Expectations had been mounting that Google would cut its IPO price range.

Google ran into trouble with its unusual Dutch auction system, regulatory probes into its quiet period and options disclosure issues, and an overall lackadaisical stock market.

The price downgrade and smaller shares allotment "is reflective of the weakness of the tech market right now, even if you are doing something as well modeled as (Google)," said Anais Faraj, a market analyst at Nomura Securities.

"The Nasdaq looks like a very sick beast. We've had a year and a half of a tech rally and it broke about a quarter ago. Even the Google-ite retail investors are thinking twice about buying tech stocks with these valuations," he said.

In a statement on its Web site overnight, Google said it expects to sell 14.14 million shares in the offering as originally filed, but that the selling shareholders are reducing the shares they expect to dispose of to approximately 5.5 million shares "in view of this new price range."

The change represents a decrease of 6.1 million shares. Google founders Larry Page and Sergey Brin will now sell nearly 500,000 shares each, down from about 1 million each.

CEO Eric Schmidt will sell 369,000 shares, down from 738,000.

Venture firms Kleiner Perkins and Sequoia Capital trimmed their share of the IPO to zero, from about 2 million shares each.

The search engine serves around 200 million requests for information a day. On Monday, a filing revealed the SEC is informally probing option grants to employees. See full story.

Google also said the SEC has also requested additional information concerning the publication of a Playboy interview with Page and Brin in connection with a probe into whether the firm violated quiet period restrictions on stock debuts.

Investors will be watching the stock closely when it begins trading on the Nasdaq.

Throughout the run-up to the offering, Google warned investors that the price would be unlikely to jump after the stock-market debut, as was the case with virtually every hot IPO during the tech boom of the late 1990s.

"Buyers should not expect to be able to sell their shares for a profit shortly after our Class A common stock begins trading," Google wrote in its IPO filing.

Bidding began Friday, marking the latter stages of the experimental Dutch auction, which was meant to give individual investors a fairer chance at purchasing shares.

With an estimated market capitalization of around $25 billion, Google will rival fellow search icon Yahoo and approach the $45 billion value the market places on auctioneer eBay and double the market cap of e-tail pioneer Amazon.com.

Yahoo's market cap was about $334 million when it went public in 1996, but the stock jumped 154 percent in its first day -- a publicity-boosting development that was as common among bubble-era Net IPOs as it was maligned by investor watchdogs.