Facebook Halts Secondary Market Trading, Plans for May IPO

NEW YORK | Thursday, March 29th, 2012 8:11am EDT

Facebook is reported to stop the sale of its shares on secondary markets next week as the social-networking site prepares to hold its initial public offering in May.

Facebook To Put Secondary Market Trading on Ice 01

The social networking giant plans to halt trading of its shares on private exchanges this week. Photo: Franco Bouly/Flickr

The company has warned secondary-market organizations, including SharesPost and SecondMarket, that it is about to stop trading its shares this week.

The move is supposed to help Facebook determine who its shareholders are and to establish a proper valuation leading up to its initial public offering. Right now on SharesPost, shares of Facebook are trading at an implied valuation of $101 billion.

“Facebook is doing everything possible to make this an orderly opening, as opposed to seeing wild swings with the pandemonium surrounding Facebook’s IPO,” said Scott Sweet, senior managing partner at IPO Boutique.

“It wouldn’t surprise me if they wanted to let the market settle down before they head out on a roadshow” to meet with would-be investors, said Buyer, who helped advise Google Inc. on its 2004 IPO. Her firm is based in Portola Valley, California.

As Bloomberg reports, SharesPost moved the date of a Facebook-share auction to March 30, the online marketplace said in an e-mail to its users yesterday. Previously, the auction had been set for April 2.

“At Facebook’s request, SharesPost will cease facilitating transactions in Facebook stock as of Friday end of day to help ensure the company’s orderly transition into the public markets,” the company said in note to clients today.

As Facebook moves towards its IPO, some investors are raising concerns about Facebook’s dual-class share structure, which will give Facebook’s CEO Mark Zuckerberg control of 56.9 percent of the company’s post-IPO voting shares.

At a recent meeting with financial analysts and investors, Facebook executives suggested that Zuckerberg will not be very involved with Wall Street, says Reuters.

Despite the criticisms, investor demand for equity in Facebook has burned strong for years, with shares of Facebook trading briskly in special secondary markets for private company stock.

SharesPost Financial, a firm that facilitates trading shares of privately held companies such as Facebook, announced on Wednesday that it would cease facilitating transactions in Facebook as of the end of day on Friday “to help ensure the company’s orderly transition into the public markets.”

While the trading of startup shares lets early employees and investors make money from holdings, it has to be regularly examined as the transactions can lure investors who may not understand the company and the risks involved.

The U.S. Securities and Exchange Commission has recently settled with SharesPost to stop the rumors that the online marketplace acted as an unregistered broker of shares, its first action in a broad probe of trades involving nonpublic startups.

“Facebook’s implied value dropped 5 percent to about $93 billion in a late-February auction of a fund that holds shares of the social-networking company’s stock,” writes Bloomberg.

“The sale set a price of $40 apiece for 125,000 units of the fund, according to San Bruno, California-based SharesPost, which managed the auction. A Feb. 14 fund auction valued Facebook at about $98 billion.”

Earlier this month the social-networking site was reported planning to increase its $2.5 billion credit line in order to cover tax obligations for employees’ stock awards.

“All these tax obligations are being created and you need cash to take care of it. You see this all the time but in this case it will be substantial,” explained then Michael Moe of GSV Capital, which owns Facebook shares.

“Having the cash to be able to take care of that makes a lot of sense. That would be the motivator of a larger credit facility,” he added.

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