English and Literature
Submitted By xczx
The social networking company Facebook, Inc. held its initial public offering (IPO) on May 18, 2012. The IPO was one of the biggest in technology, and the biggest in Internet history, with a peak market capitalization of over $104 billion. Facebook's founder and chief executive Mark Zuckerberg had for years been unwilling to take the company public and he resisted a number of buyout offers after Facebook's founding. The company did, however, accept private investments from companies--often technology firms.
Question 1: What made Facebook go to public on May 18, 2012?
Many reasons, what made Facebook going to public on May 18, 2012, but there are only 3 main reasons which are: * SEC Rule: The key reason Facebook is going public is because of an antiquated Securities and Exchange Commission rule from 1964 that says that any private company with more than 500 "shareholders of record" must adhere to the same financial disclosure requirements that public companies do. That means filing detailed quarterly and yearly financial reports, and dealing with all the scrutiny that comes with a powerful company opening its books. * Employees will breathe a sigh of relief: One big upside is that many employees can start cashing out, and the newfound wealth of a successful Facebook IPO would be widespread enough that it should be easy to spot. Given that, going public is important to help Facebook keep good people, although some newly rich always bolt (as happened at Google). It should also cheer up those with restricted stock units, which plenty of Facebookers have privately griped about. * Enhancing The Liquidity of Share: Zuckerberg can make bold bets, especially given that the company is reportedly planning to sell just 10 percent of the company to the public. He and his team will still be very much in control. Facebook would suddenly see its pile of cash balloon by $10 billion. Consumers Internet are a battle titans with Google, Facebook, Apple, Amazon, Microsoft - all of which are sitting on mountains of cash.
Question 2: What procedures did Facebook have to follow? What requirements did Faceboook have to meet in order to be eligible to do IPO? a) IPO Process
The Pitch: at first people thought that Goldman Sachs would land the lead role because it helped arrange $1.5 billion of financing in 2011. Facebook is unusual book runners because it has 12 banks due to the size and prestige of the offering.
The Kick-Off Meeting: Facebook is an interesting example because “customer calls” apply in a different way from what you might expect – their “customers” are not individual users so much as the companies that advertise on the site.
The S-1 Filing - Registration Statement: The company waits 30 calendar days for comments from the SEC, and the legal team responds to everything once they hear back.
Pre-Selling the Offering: With some companies this can be enlightening; with Facebook it was quite boring because the company had already been actively traded on secondary exchanges long before the IPO, so everyone knew what the rough price range would be.
The Roadshow: During this time, bankers keep getting more and more feedback from investors and may further revise the price range – that’s why Facebook changed its own range from $28 – $34 to $34 – $38.
The Pricing Meeting: Feedback was clearly very positive for Facebook, since it set its price at $38 - the high end of the range.
Allocation: Once the deal is priced, the syndicate team of the banks will allocate shares to investors.
Trading: Once the deal is allocated and everyone has their shares, the stock starts trading and “the general public” can buy and sell shares. b) Requirements
A company interested in selling shares in an IPO submits a registration statement to the Securities & Exchange Commissions (SEC). The SEC, in turn, reviews this statement for compliance with regulations regarding disclosure of important company information. The SEC permits the issuer to sell shares to the public by declaring the registration statement effective. This is not an approval or disapproval of the issue by the SEC. It also does not guarantee the accuracy of the information in either the registration statement or the prospectus. It does, however, allow the shares to be sold (offered) to the public. The issuer and the underwriters then price the shares, and they become available to be purchased in the secondary market.
The social-networking company has been at work on Capitol Hill as well. It's been lobbying Congress on behalf of a bill--now before the Senate--that, among other changes, ups the number of shareholders of record to 2,000, according to John Coffee, a Columbia Law School professor who last fall testified before the Senate Banking Committee about this issue.
The company has to follow these rules:
+) The company must have a existence of at least 3 years
+) The company must have audited financial statements of 3 years
+) The company must have tangible assets of at least 3 Crores Net
+) The company should have a Net Worth (Net Worth = Equity + Reserve) of 1 Crore
+) Size of an IPO should not exceed more than 5 times of Net Worth.
Question 3: What is total cost of Facebook’s IPO? What is the subscription price? Is there anything special about the underwriter(s) of Facebook’s IPO? (Hints: Compare and contrast with another technology (or internet) company) a) Total cost Facebook’s IPO * The underwriters earned what looked like a nice payday from the Facebook IPO. While the underwriting spread of 1.1%, the total fee was $176 million – based on a spread of 41.8 cents a share -- thanks to the large size of the deal, which totaled 421 million shares. Facebook's underwriters include Morgan Stanley, J.P. Morgan, Goldman Sachs, Bank of America, Barclays and Allen & Co.
Still, if Facebook does raise the $10 billion it is expected to raise, that would be about $110 million in fees to split among the underwriters.
Speculation from one person familiar with the IPO said the top three banks, Morgan Stanley, J.P. Morgan and Goldman Sachs, could get about half of the total fees, with Morgan Stanley alone getting 25% to 30% and the others splitting what is left. Those banks had accounted for the majority of Facebook’s credit line.
That could mean between $27.5 million to $33 million for Morgan Stanley. Meanwhile, some 28 other banks would fight for a piece of some $55 million.
Share sold : 421 million * Underwriter Spread=$38*1.1%*421 million=175,978,000 * Underpricing: Offering Price = $38
First Day = $38.23 * Underpricing= $38.23-$38*421 million=96,830,000 * Out – of – pocket: 3.7 million b) The subscription price is $37.582 per share c) The underwriters Facebook IPO has some special traits: * Of those 11 underwriters, 10 are participating in Facebook’s credit facility. The table shows the full list of 30 underwriters:
Morgan Stanley & Co. LLC | Citigroup Global Markets Inc. | BMO Capital Markets Corp. | Lebenthal & Co., LLC | Pacific Crest Securities LLC | J.P.Morgan Securities LLC | Credit Suisse Securities (USA) LLC | C.L. King & Associates, Inc. | Loop Capital Markets LLC | Piper Jaffray & Co. | Goldman, Sachs & Co. | Deutsche Bank Securities Inc. | Cabrera Capital Markets, LLC | M.R. Beal & Company | Raymond James & Associates, Inc. | Merrill Lynch, Pierce, Fenner &Smith Incorporated | RBC Capital Markets, LLC | CastleOak Securities, L.P. | Macquarie Capital (USA) Inc. | Samuel A. Ramirez & Company, Inc. | Barclays Capital Inc. | Wells Fargo Securities, LLC | Cowen and Company, LLC. | Muriel Siebert & Co., Inc. | Stifel, Nicolaus & Company, Incorporated | Allen & Company LLC | Blaylock Robert Van LLC | Lazard Capital Markets LLC | Oppenheimer & Co. Inc. | The Williams Capital Group, L.P. |
* Many underwriters participate issuing Facebook IPO but there are only 3 lead Underwriters which gain lot of profits: Morgan Stanley Bankers, CFO’s Rolem, JPMorgan Wins
d) The comparison with some technology/ internet company: * Apple: On December 12, 1980, Apple launched the Initial Public Offering of its stock to the investing public. When Apple went public, it generated more capital than any IPO since Ford Motor Company in 1956 and instantly created more millionaires (about 300) than any company in history. Several venture capitalists cashed out, reaping billions in long-term capital gains. * Google's initial public offering (IPO) took place five years later on August 19, 2004. At that time Larry Page, Sergey Brin, and Eric Schmidt agreed to work together at Google for 20 years, until the year 2024. The company offered 19,605,052 shares at a price of $85 per share. Shares were sold in a unique online auction format using a system built by Morgan Stanley and Credit Suisse, underwriters for the deal. The sale of $1.67 billion gave Google a market capitalization of more than $23 billion. The vast majority of the 271 million shares remained under the control of Google, and many Google employees became instant paper millionaires. Yahoo!, a competitor of Google, also benefited because it owned 8.4 million shares of Google before the IPO took place.
Summary, the social networking company Facebook, Inc. held its initial public offering (IPO) on May 18, 2012. The IPO was one of the biggest in technology, and the biggest in Internet history, with a peak market capitalization of over $104 billion. Media pundits called it a "cultural touchstone."Facebook IPO have help Facebook Company gained 16 billion what was the highest IPO history. Besides, the number of shares sold highest with 421 million shares and many underwriters participate Facebook’s IPO.
Susanna Kim (May 17, 2012), http://abcnews.go.com/blogs/business/2012/05/facebook-ipo-38-shares-biggest-tech-offer/
Emil Protalinski (March 7, 2012), http://www.zdnet.com/blog/facebook/facebook-secures-5-billion-credit-line-adds-25-underwriters/10149
David Benoit and Randall Smith (March 20 ,2012), http://blogs.wsj.com/deals/2012/03/20/facebook-ipo-divvying-up-the-underwriting-fees/ http://en.wikipedia.org/wiki/History_of_Apple_Inc.#Apple_IPO http://en.wikipedia.org/wiki/Google