Aug. 18 (Bloomberg) -- Google Inc., the most-used Internet search engine, unveiled a surprise plan to sell $4 billion in shares, taking advantage of a tripling in the stock price since the company's initial public offering a year ago today.

Money raised from the sale of 14.2 million shares, or 4.8 percent of the total stock outstanding, may be used for acquisitions, Mountain View, California-based Google said in a regulatory filing today. Google said it isn't close to making a ``material'' purchase.

The sale signals Google may accelerate an expansion beyond search, mapping and e-mail functions that have drawn users, advertisers and investors. Google may make a purchase as big as $2 billion in China or Russia and create a ``war chest'' to fend off competition from rivals including Yahoo! Inc. and Microsoft Corp., Goldman, Sachs & Co. analyst Anthony Noto said today in a note.

``Their thoughts are for something more expansive'' than spending on hiring and opening offices, said Jason Schrotberger, an analyst at Turner Investment Partners Inc. in Berwyn, Pennsylvania, which owned 450,000 Google shares as of June.

Google, which first sold shares to the public at $85 a year ago, is tapping investor appetite for its stock, prompted by a surge in Internet advertising and a fivefold rise in profit. Capital spending may increase, the company said today.

The shares dropped 1.8 percent, or $5.05, to $280.05 at 4 p.m. New York time in Nasdaq Stock Market composite trading. They earlier fell as low as $275.

Surging Demand

Google, co-founded by Sergey Brin and Larry Page seven years ago in Page's Stanford University dorm room, has acquired more than three companies since going public.

The company so far has acquired Dodgeball.com, a Web site that allows cell phone users to monitor friends' locations and Urchin Software Corp., which develops Web-ad technology. In October, Google bought mapping service Keyhole Corp. and yesterday acquired Android Inc. Google didn't disclose the price it paid for those companies.

Google also owns a stake in Baidu.com Inc., China's largest search engine. Baidu may be a ``good strategic fit'' for Google, Merrill Lynch analyst Lauren Rich Fine said today in a note to clients.

The company may follow Yahoo's lead in buying companies outside the U.S. Yahoo last week agreed to pay $1 billion for 40 percent of Alibaba.com, China's biggest online retailer. Acquisitions in China and Russia ``make sense,'' said New York-based Noto, who rates the shares ``outperform.''

``Strategically, they've got to be looking at trying to catch up with Yahoo's investment in China,'' said Laura Martin, an analyst with Soleil Securities Corp. in Pasadena, California. She rates the shares ``hold'' and said she doesn't own them.

Diversification

Google may make acquisitions to diversify its revenue beyond ads linked to search results, Standard & Poor's analyst Scott Kessler said. The company may try to make more money through display advertising or fees from transactions on the Web, said Henry Ellenbogen, a fund manager at T. Rowe Price Group Inc. in Baltimore, which owned 1.43 million shares as of June.

One potential acquisition target for Google may be Skype Technologies SA, an Internet calling service with more than 40 million customers, Kessler said. Other potential purchase targets include video-recorder maker TiVo Inc. and Infospace Inc., which sells ring tones and games for cell-phones, Rich Fine said.

Google has ``no current agreements or commitments with respect to any material acquisitions,'' according to the filing with the U.S. Securities and Exchange Commission. Google spokesman Steve Langdon declined to comment.

Google, which had net income of $968 million in the year through June 30, has about $2.95 billion of cash and long-term liabilities of $95,500. Yahoo has $4.92 billion in cash and marketable securities and $750,000 in long-term debt.

Google boosted its 2005 capital spending forecast twice this year to more than $700 million after increasing its workforce by 20 percent last quarter and deciding to open a development center in China in July.

Share Sale

Google will sell about 14.2 million Class A shares and underwriters have an option to sell an additional 600,000 shares, according to the filing. The sale will take Google's Class A shares outstanding to 191.1 million and total shares to 292.8 million.

The sale will probably exceed the $3.99 billion secondary offering by Goldman, Sachs in 2000 and be the largest U.S. sale in at least 10 years, according to David Menlow, who runs IPOFinancial.com and has data going back to 1995.

Google's Dutch-auction style IPO last year raised $1.67 billion for the company and its investors, which sold a combined 19.6 million shares. In that offering, Google shunned the typical IPO process in favor of the auction system. A series of missteps and the worst market for U.S. IPOs in almost two years caused the company to cut the price from $135 and reduce the number of shares.

Fees

Morgan Stanley and Credit Suisse First Boston, the IPO managers, were hired again for the secondary sale. Allen & Co. is assisting. The filing didn't mention using an auction for this sale.

The firms may share fees of as much as $150 million, based on the average fee of 3.6 percent this year on U.S. secondary sales, data compiled by Bloomberg show. Credit Suisse spokeswoman Mary Claire Delaney and Morgan Stanley spokeswoman Melissa Stonberg declined to comment.

Page, 32, and Brin, 31, made their search engine profitable by making it more accurate and selling advertising alongside search results.

Google had 56 percent of global search queries in June, compared with 48 percent a year earlier, according to ComScore Networks, which tracks Web use. Yahoo's share fell to 22 percent from 26 percent and Microsoft's MSN search engine rose to 11 percent from 10 percent.

Narrower Margins

Revenue doubled in Google's first year as a public company. Google beat analysts' profit estimates in all of its first four quarters as a public company. Of the 34 analysts following Google, 23 rate the shares a ``buy'' and nine say ``hold.''

Growth may slow this quarter, Google Chief Executive Officer Eric Schmidt, 50, said when releasing second-quarter results July 21. That caused the stock to tumble 3.7 percent from a record $317.80 the next day. Schmidt said summer vacations would reduce the number of users on Google's sites and may curb the rise in ad spending.

Schmidt also warned that margins may narrow as Google spends more to hire workers and expand its business. Google almost doubled spending in the second quarter and operating margins shrank to 34.4 percent from 35.2 percent.

Research and development spending doubled to $95.8 million and capital spending rose 64 percent to $157.5 million. Google, with about 4,200 workers, has 400 jobs advertised on its Web site at its Mountain View, California headquarters. Microsoft has 14 times as many employees, Google said in the filing.

`Bigger Strain'

Extra capital spending may go toward adding server computers, which run networks and Web sites, bandwidth to speed up connections and storage capacity for products such as e-mail, printing and Google video, Merrill Lynch's Rich Fine wrote in a note to clients today before the stock sale filing.

The spending and increased hiring could ``put a bigger strain on margins for the quarter than we previously anticipated,'' Rich Fine wrote. Rich Fine, based in New York, rates the stock ``neutral.''

Google investors remain optimistic about growth. Fidelity Investments and Bill Miller at Legg Mason Inc. raised their stakes in the second quarter, according to filings made with regulators this month. Fidelity, Google's largest investor, increased its stake by 3.99 million shares to 15.9 million.

``We continue to view its prospects very favorably,'' Miller, whose fund has outperformed the Standard & Poor's 500 Index for a record 14 years, said in an e-mail yesterday. Legg Mason funds own more than 5 million Google shares and increased their holdings in the quarter ended June 30, according to an Aug. 11 filing.

To contact the reporter on this story: Ron Day in Princeton at rday1@bloomberg.net; Jonathan Thaw in San Francisco at jthaw@bloomberg.net

Last Updated: August 18, 2005 19:56 EDT