Facebook Orders Banks To Stop Leaking IPO Details

redletterdave writes "In the weeks leading up to Facebook's massive $100 billion initial public offering, Mark Zuckerberg reportedly told JPMorgan Chase, Morgan Stanley, Goldman Sachs and the other banks involved in the IPO to stop leaking information to the media. Zuckerberg was reportedly unhappy that the banks leaked details about his company's Wall Street debut, including the Feb. 1 date it chose to file its S-1 paperwork with the SEC. Facebook execs are also miffed about the subtle rivalry between Morgan Stanley and Goldman Sachs, which were jockeying to become the lead underwriter for the IPO, the largest since Google's $1.7 billion offering in 2004. The banks are heeding Zuckerberg's warning, urging their employees to keep quiet about Facebook's filing, because disobeying Zuckerberg's wishes could mean getting dropped from one of the most lucrative IPOs in recent memory. The banks stand to make $40 million from their deals with Facebook."

Comments

Advice: no stock price pop

[mveloso]

Remember, a pop in the stock price isn't a sign of success - it's a sign that your underwriter priced your stock too low and you got shafted.

Facebook should have a clause that if the stock pops more than 10% on opening day the lead underwriter must pay them at least 70% of the lost proceeds:

Price: $100/share
Opens: $180/share
Payout from lead underwriter: $56/share

That'll make sure that the models are accurate. The only reason to go to these guys is to maximize the cash you get for your company. Your job isn't to make them and their clients more money.

Banks reply ...

[PPH]

... next time, read our terms of use and privacy controls policy. You didn't override the default public settings in some hard to understand control panel. Better luck next time Zuckerberg.

SEC filings public documents?

[frdmfghtr]

Aren't SEC filings like this public documents?

Re:SEC filings public documents?

[quarterbuck]

It matters for a few reasons
1) SEC does not like clients advertising/talking to media etc. in the quiet period prior to IPO. If everyone knew when the documents were being filed, SEC could then treat that period too as a quiet period and would hinder facebook's advertising. It can also block any private capital raising that facebook is doing.
2)It affects prices of related stocks. Look at how linkedin, zynga stocks jumped the day after facebooks filings. It would have been easy to buy those stocks the day before filing and sell it the day after for a significant profit. It is true that linkedin/zynga stocks should not move on facebook news, but certainly their volatility increases when facebooks revenue metrics are released. So anyone buying options on these related stocks the day before profited
3) If at the last minute facebook wanted to change their bookmakers ( non-lead bookmakers can be changed easily enough), it would be difficult after the news leaks.

Re:Except it's not $100B.

[SadButTrue]

$5B is the amount FB will pocket with the sale of shares at the IPO price. The $100B number is the market value of all share @ the ipo price, give or take. I have heard as low as $75B.

Oh The Irony

[enoz]

Sounds like Zuckerberg forgot to change the default privacy settings from public to private.

Facebook - the new IPO model

[cutinf]

Facebook represents the new model for IPOs and the banks are salivating, of course they are going to lick Zuckerberg's boots. This represents fantastic fee opportunities, not only for this IPO, but I expect they want to rinse and repeat this model:

1. 1. New company attracts private capital to avoid opening the books to regulators or having to prove revenue streams early in the process.
2. 2. Banks invest as one of the "500" private investors, syndicating to their wealthy clients through private funds, and taking a hefty slice off the top for playing middle man.
3. 3. There is so much private capital, and yields on everything are so low (1.9% for 10 years!), companies can easily reach their full potential valuation this way, even 100 billion dollar companies as Facebook has proved.
4. 4. Banks get to double dip as the private investors unload to the public in the IPO, collecting fees for underwriting and management/placement fees for letting clients in on the action "pre open".

Basically, there are reasons to love this model for everyone involved except the John Q public who get shafted on IPO day with stock that has already had the full value sucked out by the private investors.

Re:Facebook - the new IPO model

[cutinf]

Your post makes sense, but I lose you at John Q public getting shafted.

The public, meaning those not rich enough to access the private funds that typically require accredited investor status (5mil+), are shafted because by extending the time companies stay under the private umbrella, a company can achieve its maximum valuation by IPO time. Companies no longer need to access public markets to get the capital they need to grow, IPOs become less about acquiring funding and more about cashing out. Even the private investors are forced to take a larger gamble on a company under no obligation to provide the level of disclosure they would going public. The big winners are the banks which get to skim in the private shares transactions at much higher rates as they are gatekeepers to limited private shares, as well as companies like Facebook that get funding without the disclosure.

Re:Apparently...

[Formalin]

The banks posted it on facebook, and thought they had done so privately. Apparently not. I guess that 'no privacy' sword cuts both ways, eh zuckerberg?

Re:banks make only $40 million?

[__aaltlg1547]

It's the market capitalization that's crazy. Facebook revenue was about 4 billion last year. No company can support a 20:1 price/sales multiple. Multiples that high scream scam.

But it's worse than that. Zuckerberg is keeping control of the voting shares in a way that allows the other investors zero say in how the company is run. He will appoint the directors. He will tell them what to say. He will decide all by himself how much he spends on development and how much on salaries including his own and how much he returns to investors in dividends or stock buybacks.

Re:banks make only $40 million?

[Xacid]

But it's worse than that. Zuckerberg is keeping control of the voting shares in a way that allows the other investors zero say in how the company is run. He will appoint the directors. He will tell them what to say. He will decide all by himself how much he spends on development and how much on salaries including his own and how much he returns to investors in dividends or stock buybacks.

Good. Companies ran by boards in the interest of shareholders and not the business (not mutually inclusive) typically have a way of fucking over the business, the workers, and the product by driving incredibly hard for cheaper and faster. I think Zuckerberg has done a brilliant move with this. Other than simply retaining control he's also showing shareholders that the direction of the company is stilll in his hands - the same leader that managed to get 10% of the world's population using his product(I read this figure somewhere recently). Love it or hate it - there's something to be said for it.