Google's $224 million prenup for YouTube

As I indicated recently in BloggingStocks.com, the rumor was that Google, Inc. (NASDAQ:GOOG) set aside a $500 million reserve for possible copyright litigation exposure for its new acquisition, YouTube. That certainly would be a big chunk – given that the initial price tag for the company was $1.65 billion.

At the Web 2.0 conference, however, Google's CEO, Eric Schmidt, denied the reserve.

Well, according to a report from AP, Google did negotiate a reserve, but for about 12.5% of the stock. At the current stock price, that's about $224 million. In legal-speak, this is known as an "indemnification" provision. In fact, this is not uncommon for deals. However, the percentages are usually a couple points.

In other words, Google is worried about having inherited legal liabilities. Hey, look at what happened to other sharing sites, such as Napster and MP3.com. The history is full of horror stories. And of course, Google's $10 billion in the bank offer a big attraction for aggressive plaintiff attorneys.

The action may come soon. Keep in mind that the indemnification clause covers a one-year period.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.