Shares in the world’s largest social networking site, Facebook will begin trading on the NASDAQ on Friday. Facebook will raise 16 billion dollars in its IPO, largest ever by a tech company in history and that values the company at a cool 100 billion dollars.
The offering was priced in the high end of its range and individual shares cost 38 dollars each on a relative basis folks, you better be prepared to pay for Facebook, its IPO price values the company at 107 times earnings only 2 other companies on the S&P500 is more expensive. Now as a public company, it means Facebook will face unprecedented scrutiny. But the company’s founder, Mark Zuckerberg, says he intends to keep the company’s management very much in his own hands.
Shortly after the bell rings at the NASDAQ on Friday morning, shares of Facebook will begin trading publicly for the first time ever. But the shares retail investors will be able to buy are different from the shares owned by the company’s founder, Mark Zuckerberg.
Facebook has created a dual class of shares. The class B shares overwhelmingly owned by Zuckerberg give him 10 votes per share. If you buy stock in the company, you will get Class A shares, which grant you one vote per share. That means when it comes to making decisions at the firm, Zuckerberg remains king.
Eric Jackson, founder of Ironfire Capital, said, "I think Mark Zuckerberg is a control freak. I think he can keep full control and so he is and that’s the trend in Silicon Valley companies."
Google’s latest stock offering came with zero voting rights for the new shares. Other tech companies that recently went public like Groupon and Zynga also had dual class share structures that keep voting power in the hands of the founders.
Jackson says tech companies get away with consolidating power because investors are hungry for high returns and technology companies often provide those high yields.
Eric Jackson, founder of Ironfire Capital, said, "As long as investors think they are going to be compensated, they shrug their shoulders at the corporate governance stuff."
But Columbia Law Professor Jack Coffee thinks this is short-sighted.
John Coffee, law professor, Columbia University, said, "I think investors should worry about this kind of governance and I think in the long run it’ll prove to be very flawed. I think founders prove to be great visionaries and poor managers more often than not. The same skills that it takes to see over the horizon and predict a new wave of technology which Facebook has done are often poor guides to being able to run an established business and maintain the support and confidence of investors."
Zuckerberg will have 55 percent of the voting rights, which means displeased shareholders will have only one option if they don’t like the way Facebook is run.
Eric Jackson, founder of Ironfire Capital, said, "The only thing can do is sell. That’s all they can do. Get out of the company because Zuck is gonna run it the way he wants to run it."
The pressure will be on for Zuckerberg to show that he can grow the company at time when questions are mounting about its revenue streams. If the company performs well, he’ll have virtual immunity to run the firm how he pleases, but if things go wrong and people start unloading the stock, that’s when things could get really interesting.