With its share price ailing, Facebook doesn’t want to flood the market with any more stock, so it has cancelled its secondary offering and will instead pay for taxes on its RSUs with cash as detailed in an 8-K filed with the SEC today. Also, CEO Mark Zuckerberg has informed the SEC he has no plans to sell any of his stock in the next year. Meanwhile, board members Marc Andreessen and Don Graham will sell some to cover taxes but beyond that “have no present intention to sell any shares”.
Along with allowing employees to sell up to 234 million shares two weeks sooner than the original November 14th lockup expiration date when the other 777 million go free, today’s announcement will let Facebook get the lockup over with sooner, avoid a secondary sale or big shareholder dump from hurting its share price, and finally get back to business.
In Facebook’s original S-1, it had given itself leeway to sell up to 122 million shares to the public market in a secondary offering to pay for taxes involved in settling the distribution of pre-2011 RSUs. Later it planned to sell 101 million shares to cover these taxes. But now with its share price so volatile, it’s chosen to scrap the secondary offering and spend some of the $10 billion it raised through the high-priced and divisive IPO to pay these taxes in cash.
Zuckerberg’s commitment alone will ensure none of his remaining “444 million shares of Class B common stock as well as 60 million shares of Class B common stock issuable upon the exercise of an option” will reach the market any time soon. He would need to file with SEC well in advance if he wanted to release any of his stake.
Meanwhile, after selling some shares to pay taxes, Andreessen will retain the rest of his 0.25% stake and Don Graham will keep the remainder of his 770,000 shares of restricted stock for the foreseeable future. And these pledges are likely not just some showy moves to stabilize the share price. It seems Zuck and the board members truly believe that if Facebook stays true to its mission and continues focusing on the user experience, they’ll see the company succeed and the share price climb in due time.
$FB did hit a new low at $17.55 earlier today before closing at $17.73 in reaction to news that an analyst from lead underwriter Morgan Stanley reduced his 12-month price target for Facebook by 16% from $38 to $32, and J.P. Morgan analyst Doug Anmuth dropped his target for the end of 2013 from $45 to $30 according to the Wall Street Journal.
But the 8-K was released just after the market closed, and the share price has rebounded another 1.98% up to $18.08 in after-hours trading as of press time, showing the 8-K’s announcements may already be doing their job of reassuring investors. Now the question will be how the market reacts when Facebook announces its third quarter financial results on October 23rd, and the sped-up employee lockup expiration hits on October 29th.