To win a chunk of the Google business, Goldman, the nation’s premier investment bank, unleashed its CEO, Hank Paulson, to pull some strings. Paulson is one of Wall Street’s best “call men,” who can brandish a Palm PDA full of connections when it’s crunch time to bring home a deal. But NEWSWEEK has learned that Paulson tried to sidestep Google’s orders by reaching out to one of Google’s largest investors, Kleiner Perkins, the powerful venture-capital firm that was an early Google backer. The move helped doom Goldman’s efforts to win the lead underwriting spot, which went instead to Credit Suisse First Boston and Morgan Stanley.
Paulson thought his best shot was John Doerr, one of Kleiner’s top partners. Bad move. When word of Paulson’s misstep got back to Google’s top executives, Goldman was quickly bumped from the top of the short list. “The people at Google were such fanatics about the rules,” said one executive who works at a rival Wall Street firm. “When they heard about this, they went ape s—t.” None of the parties involved–Google, Goldman Sachs or Doerr–would comment.
The two winners, CSFB and Morgan Stanley, managed to keep a low profile. John Mack, CSFB’s famously well-connected chief executive, purposely stayed out of the bidding process for fear that he might tip the scales to another player, people with knowledge of the matter say. Meanwhile, new rules for Wall Street research analysts appear to have prevented Mary Meeker, Morgan Stanley’s top Internet analyst, from playing a direct role, even though she and Doerr have done business together for years.
Goldman, meanwhile, can’t blame its loss just on Paulson. People close to the deal say bankers for the firm bragged to Google about the Goldman name, and didn’t generate enough ideas about how to sell shares to investors through an auction. “Their lack of marketing savvy may have hurt them more than Paulson,” said the executive from a rival firm. Sometimes, it really does pay to play by the rules.
