Google Is Small Change for Wall Street

With shares of Google(GOOG) soaring ever higher, the popular Internet search engine is winning praise for sticking with guns and using an unconventional auction system to sell its shares to the public.

Don't look for Google's perseverance to usher in a new era on Wall Street, however.

Over the last few days, a consensus has formed that while Google made some missteps in the days leading up to the deal, its $1.9 billion Dutch auction was in most respects a victory for the good guys. Google was able to raise a lot of money, and small investors turned a handsome profit -- all without a lot of pricey help from investment bankers.

The reality is somewhat different. While Goggle has been a hit in the aftermarket, much of that success had to do with old-fashioned Wall Street sleight-of-hand that made sure demand would be brisk after the deal priced.

In addition, the deal's success is inextricably tied to the publicity the IPO received in the run-up to its consummation. That's a quality that will be next to impossible for the vast majority of future IPO candidates to replicate.

TheStreet.com reported last week that Google's bankers appear to have used an allocation strategy to make sure the stock went out at $85 a share, well below the $135 sticker price the company had initially hoped for. There's evidence big investors were allocated, on average, 74.2% of the shares they had sought to purchase, a move that created excess demand for the stock and suggests it could have been priced higher if fewer bids were filled.

"This was not a true Dutch auction," says David Menlow, president of IPO Financial Network. "The deal was an unqualified success. But the bankers had to help it along."

In a Dutch auction, there rarely is a substantial post-IPO pop in a stock because the bidding process is supposed to establish a natural ceiling. The process, in theory, enables a company to get as much money as possible.