Tuesday, September 04, 2012

Facebook Cancels Secondary Offering

Facebook continued its downward trend Tuesday.  They announced Tuesday that they are cancelling their secondary offering.  This was announced after the market closed on Tuesday, with the stock reaching a low of $17.55 and a market cap of 37.98B.  Facebook’s plans are detailed in an 8-K filed with the SEC (the first link at end of blog includes the text of the 8-K) There will still be a substantial number of shares eligible to be sold over the coming months by employees and other individuals.  This may not be enough to keep them from cashing out.  Well, they may sell enough shares  for a Tesla and/or a house in Los Alto Hills or Menlo Park.  The following change was made for current employees as detailed in the 8-K:

Our employees are subject to “market-stand-off” provisions that prohibit them from selling or otherwise transferring any of their common stock or securities convertible into or exchangeable for shares of common stock until November 14, 2012.  We intend to waive this market stand-off provision to allow our employees who were employed by Facebook through October 15, 2012, to sell shares held by them or shares subject to Pre-2011 RSUs (to the extent the service condition has been met) or vested stock options on the date that is four trading days following the announcement of our third quarter 2012 financial results, which announcement is currently scheduled for October 23, 2012.”  

This gives employees the chance to go to the head of the line (in some respects) and sell up to 234 million shares in advance of another 777 million shares that will become eligible to be sold on November 14.  These shares aren’t subject to a reduced tax when sold.  They’ll be taxed as ordinary income.  No 15% here!

It’ll be an interesting day when the quarter’s financial are announced October 23.  There may not be a lot of Zuckerberg trick or treaters on October 31 following the earnings announcement.

Tuesday’s market cap of $37.98 billion is within $13B projected by Anup Srivastava, an assistant professor of accounting information and management, Kellogg School of Management.  He ran a valuation model prior to the initial public offering  and arrived at a base case valuation of $25 billion.  Sometimes the smartest guys in the room are, uh, overly optimistic.


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