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METAMOVE
FINANCIAL Chronicle Weekend May 26, 2012

What not to do while planning an

JILIAN MINCER
Reuters

Facebook offering sparked probe, lawsuits, regulatory threats & anger towards the social media firm
NEW YORK: Its been less than a week since Facebook went public, and while the IPO made CEO Mark Zuckerberg and many others very wealthy, the botched way in which the offering was done has sparked investigations, lawsuits and regulatory threats. It has also sparked a lot of anger towards the social media company, lead underwriter Morgan Stanley and the Nasdaq stock market. Here is a list of eight things that went wrong with the Facebook IPOa what not to do list for the next big technology company considering a public listing New York at the companys investor road show in his trademark hoodie, failed to appear at some other road show events, and declined to hold a ceremony at Nasdaqs main New York site in Times Square for the listing debut. He was also busy planning his nuptials his wedding to longtime girlfriend Priscilla Chan occurred one day after the IPO.

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Charge too much: Facebook raised the price of its shares above a reasonable valuation given its earnings and revenue. The $38 price tag was 100 times historical earnings. By comparison, Apple trades at 14 times historical earnings, while Google is at 19 times.

Sell too much stock: Facebook floated 421 million shares worth around $16 billion at the offering price, the biggest ever US Technology company IPO. As soon there were some wrinkles, supply overwhelmed demand. Many bankers were especially concerned that Facebook demanded a larger than usual block, about 25 per cent, be set aside for ordinary investors, who typically are more willing to flip their purchase in the hope of a quick profit. Fall for the hype: Facebook, Morgan Stanley and others believed the hype, some of it self-generated, that the companys shares would pop 30 per cent to 50 per cent on the first day of trading, and miscalculated the demand. Facebook increased the number of shares at the last minute while bad news was coming out. Then delays in the start of trading on Nasdaq and later disruptions in matching buy and sell orders gave some shareholders time to reconsider and cancel their orders. All of this resulted in less demand and a dropping share price.

Dont plan for the worst-case: Nasdaq CEO Robert Greifeld partied last Friday with Zuckerberg while the bell was rung at Facebooks Silicon Valley headquarters to kick off trading, but at just that time a major crisis was brewing back east at Nasdaqs sites. Technical glitches delayed Facebooks debut by 30 minutes and many buy and sell orders for hours afterwards, Nasdaq said on Wednesday that it made the wrong fix for a technical glitch, worsening the initial problem. The US Securities and Exchange Commission is now reviewing the matter, and at least one lawsuit has been filed accusing Nasdaq of negligence.

Despite a slowdown in its online advertising business, Facebook floated 421 million shares of around $16 billion Morgan Stanley lowered its forecasts for Facebooks full-year revenues, but the bad news reached only a few big clients

Avoid the Google road: Facebook sold its shares through a traditional Wall Street IPO, which is a more subjective process because its managed by the investment bankers. By contrast, when Google went public in 2004, it issued stock through a more transparent and democratic process known as a modified Dutch auction. Underwriters gathered bids from investors regardless of their connections or size of their portfolios.

UNDER REVIEW: The US Securities and Exchange Commission is reviewing the technical glitch at Nasdaq at the time of Facebook listing

Technical glitches by Nasdaq delayed Facebooks debut by 30 minutes and buy/sell orders for hours afterwards

Selective disclosure: Even if Morgan Stanley and other underwriters didnt do anything il-

legal, they werent upfront about what they knew about the company and whom they told. Morgan Stanley and at least three of the other underwriters lowered their forecasts for Facebooks second-quarter and fullyear revenues, but the bad news reached only a small group of big clients. The company and Facebook have denied any wrongdoing, but regulators and lawmakers have opened

and reviews, and some shareholders have sued Facebook and Morgan Stanley. Have a distracted CEO: Some investors are asking whether Facebook CEO Mark Zuckerberg was on top of the whole process enough given the many thousands of investors who were about to buy a slice of his company. He appeared in

Alienate your customers: For a company that transformed the meaning of the words like and friend, the events of the last week werent so friendly. IPO problems managed to upset thousands of investors who are also Facebook customers. In a sign of the image problems it has created, the headline on one New York Post column on Thursday was: Warm, Fuzzy Vultures, and a cartoon in the same newspaper depicted a distraught bull slumped over a computer featuring a Facebook page thinking the worst unfriend, unfriend, unfriend, unfriend, unfriend.

AP