Make Sure To Accept All Your Shareholder Friend Requests Before Announcing Material Information On FacebookBy Bess Levin
New rules. Read more »
I’m generally fond of companies that find creative ways to access the public equity markets while not giving away all the “rights” that traditionally go to “owners” of “companies.” I mean, you want money, you ask people for money, you give them the terms that you need to give them to get the money: what is so sacred about shareholder voting rights?
At the same time though I’m a little skeptical of some of the reasons that private companies give for not wanting to go public. These seem to me to be basically two:
- High-frequency-trading computers robots algorithms crash scary scary.
- “If we go public our shareholders will force us to focus on quarterly earnings rather than the long-term good of the company.”
The first one, as you might notice from its grammar, seems ill-defined, though the fact that like every high-profile IPO this year has suffered from a computer glitch makes me think that it’s on to something. Something vague though. The second one: I mean, just don’t do that. What’s gonna happen to you if you manage for the long-term good of the company? Your stock will go down this quarter? Who cares? I thought you were in this for the long haul?
But they’ve got a point. Today in “shareholders are assholes,” here’s a delightful recent paper by three business professors about how stronger shareholder rights make companies more likely to manage earnings.1 As they point out, you could have two models of how strong public-shareholder rights (i.e. things like robust shareholder voting rights, weak anti-takeover provisions, etc.) affect corporate behavior:
- Shareholders are good and will make companies do good things if they’re empowered,2 or
- Shareholders are self-interested jerks and will make companies do bad things if it makes them more money.
There’s no particular reason to believe the first one but, y’know, it’s a hypothesis; it is also wrong: Read more »
It’s easy to make fun of the SEC for wanting to sue Netflix over a Facebook post. Netflix, Facebook, and the SEC are all a little funny, and bring them all together and you get a delightful orgy of hip-five-years-ago clumsiness. Also, like, olds, get over yourselves, everyone is on Facebook, why should I call Grandma on her birthday, or 8-K my operational stats? Social! 2.0!
And yet I’m a little sympathetic to the SEC here, mostly because I am old and afraid of Facebook. The agency notified Netflix yesterday that it’s planning to bring a civil action claiming that Netflix violated Reg FD by posting operational numbers – that Netflix viewing had exceeded 1 billion hours of Netflix June – on CEO Reed Hasting’s Facebook wall without press releasing or 8-King those numbers. Reg FD prohibits an issuer from “disclos[ing] any material nonpublic information regarding that issuer or its securities” to any investor or analyst without simultaneously disclosing that information through a “method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public.”
So if you’re Netflix you have two ways to win this: either the information was not material, or it was disclosed publicly in compliance with Reg FD. Perhaps strangely, Netflix is taking both angles. From its response yesterday: Read more »
Let’s disclose some conflicts of interest. I want to be all “go read this post from the NY Fed’s Liberty Street blog about the Facebook IPO greenshoe, it’s good, you’ll like it,” but I have this nagging sense that I’m mostly saying that because the New York Fed cited Dealbreaker, and what are the odds of that, so I want you to see it with your own eyes. But the post is fun, if you like this sort of thing, so, now you’ve got the recommendation and the disclosure, make your own call.1
Anyway the Fed researchers look at the Facebook IPO and the underwriters’ price stabilizing activity on its first trading day, Friday May 18. And they note, as I did, that there was a whole lot of buying at the IPO price of $38, which was probably largely due to the underwriters and which kept the stock above $38 going into the weekend before it cratered Monday morning. But they also note that there was a whole lot of buying at $40, which kept the stock above $40 for … 15 minutes.
Based on this they deduce: Read more »
Bloomberg has a story today about how, while one side of Morgan Stanley made lots of money on the Facebook IPO in fees and greenshoe trading profits, another side of it did not do so well. So: how much of the subtext here is actually here?
Morgan Stanley, the underwriter that took Facebook Inc. public at a record high market value, said its own money-management unit bought more than 2 percent of the shares sold through the $16 billion offering.
Morgan Stanley Investment Management invested about $380 million in Facebook’s initial public offering, according to regulatory filings late last month, the first to show its IPO purchases. A dozen funds run by the advisory unit’s growth team, headed by Dennis Lynch, each allocated 6.8 percent of their net assets to buying Facebook stock at the IPO price of $38 a share.
Facebook has fallen 42 percent since its offering, increased in size and price at the 11th hour. The drop erased $39 billion in market capitalization, ranking the stock as the worst-performing large technology IPO ever based on the early loss in value, according to data compiled by Bloomberg. The decline crimped the performance of Lynch’s growth team, described as a “crown jewel” of Morgan Stanley Investment Management, and left the bank’s fund investors behind on the investment.
Last week the Journal ran this sort of strange column from Ronald Barusch about IPO lockups asking “What is the point of the lockups to begin with and who gains from them?” and answering (1) without lockups “public offering prices would be lower to account for the risk of immediate sales by the insiders” and (2) “But who says that lower prices for selling executives and institutional investors — and for buyers in an IPO — would be a bad thing?” So that last question is actually pretty easy to answer: the selling executives and institutional investors say that lower prices would be a bad thing, because U’(W) > 0 etc. Thus, they sign lockups, limiting their own freedom to sell more shares in exchange for more money now. Or such is the theory, sold to them persuasively by bankers.
A nice thing about IPOs is that they end: you work for months on pitching and executing a deal, you write hundreds of pages of documents, you embark on a roadshow with tiny planes and slovenly CEOs, you price the deal, you watch it trade on that first exciting day, and then you don’t do it any more. You and the company bask in the warm glow of a successful deal, and/or you avoid their phone calls in embarrassment about a bad deal, and then you give them some space before coming back and pitching them on the next piece of business.
Facebook is like the opposite: no bank involved in it can be in that much of a hurry to pitch the next piece of business, but the IPO itself will be relived over and over again for the rest of time. The latest is Citi’s angry letter to the SEC, responding to Nasdaq’s proposal to compensate market makers who lost money on the deal. Their preference is, uncharacteristically, to be compensated more, and they express that preference in the form of a litany of complaints about Nasdaq’s ineptitude and self-interest.
For instance: Read more »
Facebook’s Plummeting Stock Price Has Forced Mark Zuckerberg To Show Human Emotion Toward Shareholding-EmployeesBy Bess Levin
Mr. Zuckerberg went on to tell employees that the press doesn’t know the company’s future plans, and if they did, they would have the same faith in Facebook’s ability to fulfill its lofty stock-market valuation. He said that investments the company has made over the last six to 12 months will soon bear fruit, the people said. During a question-and-answer session after Mr. Zuckerberg’s speech, one employee asked the CEO if employees are now allowed to talk about the stock price, according to the person familiar with the meeting. Yes, said Mr. Zuckerberg. People should feel comfortable talking about it, he said, but the price shouldn’t be the focus. Mr. Zuckerberg’s new show of sympathy toward shareholding employees was a marked change from his earlier disdain for stock-price talk. On the day of the IPO, Mr. Zuckerberg posted a picture to his Facebook wall of a poster that said, “stay focused, keep shipping.” Mr. Zuckerberg addressed his employees a few days later by saying jokingly, “So, you’ve heard we’re firing David?” referring to Chief Financial Officer David Ebersman, as Mr. Ebersman sat a few feet away, according to people familiar with the meeting. He then said, “We’re very proud of our deals team and we think they did a great job.” [WSJ]