Facebook sets private market exit

People walk by a Facebook logo and a thumbs up logo made popular by Facebook in Hong Kong on February 2, 2012.

Story highlights

  • Facebook will halt trades of its stock on private secondary markets this week
  • The move allows Facebook to finalise its shareholder list leading up to its initial public offering
  • The IPO, likely to be one of the largest ever, is expected in May
Facebook will permanently halt trades of its stock on private secondary markets at the end of this week. The move is to allow the social network to finalise its shareholder list and tighten information pathways leading up to its initial public offering, expected in May.
SharesPost, which facilitates the private sale of Facebook shares, told investors the company had requested a stop to trading on Friday "to help ensure [its] orderly transition into the public markets". Two people familiar with the situation confirmed the move.
Facebook's IPO is expected to be one of the largest ever, with some estimates putting a $100bn valuation on the company at the time of the public offering.
The length of the stop on trading is unusual. Other internet companies, including Groupon and Zynga, continued trading on the private markets right up to their IPOs, while LinkedIn ceased trading a week before its offering. Most companies take a few days, said Sam Hamadeh, chief executive of PrivCo, which researches private companies. Facebook will be the first to take at least a month.
Mr Hamadeh said the company probably wanted to prevent any leak of sensitive information from a private transaction, thereby avoiding legal risks.
It may also want to calm the private market before its IPO is priced. Facebook shares last traded at $43.50 on SharesPost, down from a February high of $46.
Facebook is aiming to go public in May, according to a person briefed on the deal, though the Securities and Exchange Commission will have a say on the timing.
The company has so far been meticulous in its preparations and dealings with regulators. The SEC has posed minimal questions to Facebook, requiring minor revisions to the company's original IPO registration forms which were filed in February.
Facebook since filed two amendments, the last one on Tuesday, which included updated warnings about a patent lawsuit Yahoo filed against Facebook earlier this month and some updated metrics about its users and engagement. The first amendment revealed that the company had established a new line of credit worth $5bn and secured a $3bn bridge loan to cover the costs of its employees selling company shares.
Facebook's exit from the secondary market is expected to have a big impact on companies like SharesPost and SecondMarket, a New York-based company that facilitates trades in private stock. Both companies were essentially built around the desire of former Facebook employees to liquidate their stock and the majority of trades they enable are for Facebook stock.
Nyppex, an illiquid securities trading consultancy, estimates its volumes will slow in 2012 to $7.1bn from $9.3bn last year, as companies like Facebook, and possibly Twitter, go public.
Facebook, SharesPost and SecondMarket declined to comment.