Google Buying Back Shares To Offset “Dilution” Effect Of AdMob Purchase

During Google’s third quarter earnings call CEO Eric Schmidt expressed a kind of philosophical objection to corporate stock repurchase programs. But now in the wake of the $750 million acquisition of AdMob Google is going to do its first stock buy back to prevent investor dilution from the event.

During the Q3 earnings call the following question was asked of Schmidt: “What are the plans for Google’s large cash balances? Are stock buybacks being considered at any point?” Schmidt responded:

[CFO] Patrick [Pichette] and I were talking about who should answer this question. We have been doing very well in the cash generation front, throughout this whole year, which is a critical year. We have been able to be very strongly cash flow positive and we hope that that will continue for a long time. We love cash.

The issue with stock buybacks is historically they have often not achieved the objective that they’ve set out. So they are certainly none under consideration right now and I wouldn’t expect any time soon. I wouldn’t rule one out but I would not put it on your list of things to anticipate any time soon.

From our perspective the cash gives us a lot of operating and strategic flexibility over the very long term and so we are very happy to have it sit in our bank account and earn modest interest rates.

(Emphasis added.)

That was on October 15; today is November 12, less than a month later.

I would guess that Google was pretty far along in talks with AdMob about the acquisition at the point of the Q3 call but  perhaps unclear on how it would pay for and structure the deal. The stock transaction means that AdMob’s key personnel will be sticking around at least through some vesting period (at least two years). Getting their expertise was one of the explicit points of buying the company for Google.