Zuckerberg to keep iron grip after IPO
San Francisco - Facebook unveiled plans for the biggest ever
internet IPO that could raise as much as $10bn, but made it clear CEO Mark
Zuckerberg will exercise almost complete control over the company, leaving
investors with little say.
The Harvard dropout, who launched the social networking
phenomenon from his dorm room, will control 56.9% of the voting shares in a
company expected to be valued at up to $100bn when it goes public. Facebook
says it has 845 million active monthly users.
Wednesday’s long-awaited filing kicks off a process that
will culminate in Silicon Valley’s biggest coming-out party since the heyday of
the dotcom boom and bust.
In its filing Facebook says it is seeking to raise $5bn, but
that is a figure used to calculate registration fees among others and analysts
estimate it could tap investors for $10bn.
That would value the company at $100bn, dwarfing storied
tech giants such as Hewlett Packard, while validating the explosive growth
worldwide of social media as communication and entertainment.
Zuckerberg’s economic control of about 28% of the shares
would be worth $28bn at a $100bn valuation, ranking him as the fourth-richest
The 27-year-old’s ownership position means Facebook, a
company dissected in 2010's Oscar-winning “The Social Network”, will not need
to appoint a majority of independent directors or set up board committees to
oversee compensation and other matters.
The company’s ownership structure and bylaws go against
shareholder-friendly corporate governance practices put in place in the United
States after years of investor activism.
As Facebook states in its prospectus, Zuckerberg will
“control all matters submitted to stockholders for vote, as well as the overall
management and direction of our company.”
Zuckerberg struck deals with several Facebook investors that
granted him voting rights over their shares in all or most situations. Those
included Yuri Milner’s DST Global, venture capital firm The Founders Fund, and
entities affiliated with Technology Crossover Ventures, the IPO filing shows.
Google’s Sergey Brin and Larry Page retained control of the
search giant through similar arrangements and the Sulzbergers did much the same at the New York Times.
“Zuckerberg, at the time, probably had his choice of
investors,” said Steven Kaplan, a professor at University of Chicago’s Booth School of Business, who researches venture
capital and corporate governance. “He basically had the ability to say ’my way
or the highway."
“The downside of doing this is that the value of Facebook
may be slightly lower than it would be if he were not retaining control.”
Facebook could make its market debut in the middle of the
year based on the usual timetable of IPOs.
Its IPO prospectus shows that Facebook generated $3.71bn in
revenue and made $1bn in net profit last year, up 65% from the $606m it made in
“We often talk about inventions like the printing press and
the television,” Zuckerberg said in a letter accompanying the documents. “Today, our society has reached
another tipping point.”
“The scale of the technology and infrastructure that must be
built is unprecedented.”
Facebook appointed Morgan Stanley, Goldman Sachs and
JPMorgan as its lead underwriters. Other bookrunners include Bank of America
Merrill Lynch, Barclays Capital and Allen & Co.
Zuckerberg agreed to cut his compensation from $1.48m last
year to $1 effective January 1, 2013, following the example of Apple founder
Facebook’s chief operating officer and Zuckerberg’s top
lieutenant, Sheryl Sandberg, earned $30.8m in total compensation last year.
Facebook’s growing popularity has pressured entrenched
internet companies from Yahoo to Google.
In 2011, the social network overtook Yahoo to become the top
provider of online display ads in the United States by revenue, industry
research firm eMarketer says. A $10bn IPO would be the fourth-largest in US
history after Visa, General Motors, and AT&T Wireless, Thomson Reuters data
The $5bn figure in Wednesday’s prospectus was an initial,
reference figure - a basis for registration fees, among other things - and could change based on
The prospectus said 85% of Facebook’s 2011 revenue was derived
from advertising. Social-gaming company Zynga, creator of Farmville, accounted
for 12% of Facebook’s revenue last year.
The IPO will dwarf any recent debuts of internet companies,
such as Zynga, LinkedIn, Groupon and Pandora Media. Their IPOs had mixed receptions. The last
debut, from Zynga, closed 5% below its IPO price during its first trading day
Google raised just shy of $2bn in 2004, while Groupon last
year tapped $700m and Zynga $1bn.
The hacker way
Facebook aims to be more attractive to potential large
advertisers. It has improved its ad targeting capabilities as it collects user
data through new features such as the Timeline, said George John, founder of
Rocket Fuel, a digital marketing company.
Advertising revenue increased 69% in 2011 from 2010, and its
average revenue per ad increased 18%.
“As Facebook gathers more and more users’ time and data, it
makes sense for advertisers to get more serious about allocating more budget to
Facebook,” he said.
In its prospectus, Facebook revealed an effective 2011 tax
rate of 41% and warned it could climb in 2012.
That rate surpasses the average corporate rate of 35% and
far outstrips industry peers like Apple, which through offshore businesses pay
Yet in his letter to investors, Zuckerberg stressed
Facebook’s “social mission” over the pursuit of profits.
“Facebook was not originally founded to be a company,” he
said. “Simply put: we don’t build services to make money; we make money to
build better services.”
He laid out his vision for a company that remained grounded
in an engineering culture, devoting several paragraphs of his letter to what he
called “The Hacker Way” at Facebook.
Some of Facebook’s most successful products - including Timeline,
chat and video - emerged from “hackathons” where coders gathered to build out
prototypes and compare notes, Zuckerberg wrote.
“Hackers believe that something can always be better, and
that nothing is ever complete,” he said. “There’s a hacker mantra that you’ll
hear a lot around Facebook offices: ’Code wins arguments.“
Take the money and run mate. FB's popularity is in rapid decline in the markets that matter.
I agree 200% with The-third, its a gimmick and like all novelties it will wear off, i think its already happening..... here is a good chance to short the share and make a killing.......