When Google's big day finally came, the little guy failed to show up.

That is the verdict on an initial public offering (IPO) that was meant to be driven by demand from individual investors, according to details yesterday of how shares in the offering were allocated and comments from underwriters involved in the stock sale.

For the internet search company, which had hoped to use its unusual IPO process to break open Wall Street's clubby establishment, while at the same time using the share sale to enhance its consumer brand, that will come as a damning conclusion.

It also helps to explain why the shares were eventually sold for much less than Google had originally hoped, according to several underwriters involved in the deal.

With retail investors sitting on the sidelines, it was left to a group of big institutional investors to determine the outcome in a final round of bidding on Wednesday, according to these people.

For the idealistic internet company, which had hoped to democratise the IPO system, that was exactly the outcome that was most to be avoided.

A handful of banks that represent the Wall Street establishment ended up distributing some 77 per cent of the shares that were for sale, according to a regulatory filing with the Securities and Exchange Commission (SEC) yesterday.

While some of those banks - such as Morgan Stanley, the joint lead underwriter - have retail stockbroking arms that deal with individual investors, most specialise in selling to institutional investors.

Just three banks - Morgan Stanley, Credit Suisse First Boston and Goldman Sachs - ended up with 61 per cent of the internet company's shares between them.

Google had hoped to spread the net far wider in an effort to reach individual investors who do not normally get a chance to take part in the most sought-after IPOs.

By assembling a group of 28 underwriters, many of which deal mainly with private investors, it expected to draw on intense private investor interest and its high brand recognition.

However, with less than a quarter of the stock distributed between them, worth some $400 million (€323.5 million), the brokers who are not part of the Wall Street establishment failed to tap into the enthusiasm among small investors that had initially been anticipated.

The attempt to sell to private investors was also damaged by the early departure from the underwriting group of Merrill Lynch, the Wall Street firm with the biggest retail network.

The low fees being paid to the underwriters and the costs involved in building the technology needed to handle Google's unusual auction made the process an unprofitable one, several grumbled.

Two other factors killed off individual investor interest, several underwriters said.

By setting the price of its shares at such a high level, rather than splitting the stock and selling the shares for a lower price, Google discouraged many investors from bidding - even though, in theory, this should have made no difference.

Also, with the powerful momentum behind internet stocks running out of steam in July, investors who might have hoped for quick profits from a Google stock offering stayed away.

Many institutions sat on the sidelines, holding back their bids until it became clearer when the auction would end and where the price might end up, according to two people involved in the process.

By Wednesday morning, when Google was forced to show its hand by cutting the indicated price range of the offer to between $85 and $95, it had become apparent that individual investors had not taken up the slack and the institutions would have the leverage to set the final terms of the deal, these people said.

The result: however much Google tried to avoid being forced to hand its shares at a discount to the most powerful investment institutions, it might have ended up doing just that. - (Financial Times Service)