Facebook Orders Banks To Stop Leaking IPO Details 110
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."
Advice: no stock price pop (Score:5, Interesting)
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.
Lesser of Two Evils? (Score:3, Interesting)
Re:Facebook - the new IPO model (Score:5, Interesting)
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:Advice: no stock price pop (Score:4, Interesting)
That's irrelevant, that overvaluedness could have gone into you pockets (you could have issued a smaller percentage of the company for the same amount of capital raising) if the IPO was priced higher to start with.
The big banks want undervalued IPOs. Sure it harms the "client" - but that client is a one off - that "I" part makes it unlikely you'll be doing it again after all.
However, those big institutional investor clients of the big banks - they like seeing the price of the stocks they just bought shoot up fast. And they'll be buying more stocks in future IPOs, so keeping them happy is well worth it.
Hence the big banks like to undervalue IPOs. Of course in this case they're screwing facebook. Couldn't happen to a nicer guy and all...
Re:banks make only $40 million? (Score:5, Interesting)
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.