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October 1, 2010 8:42 pm
Facebook has issued a five-to-one stock split in an attempt to put its per-share value on par with other private companies.
The value of Facebook stock has soared in recent months as traders on the so-called “secondary market” have paid as much as $76 per share, giving the privately held company an implied valuation of $33.7bn.
“The stock has risen to a point where we wanted to bring it back into a range similar to other private companies,” said Jonny Thaw of Facebook. “The stock has risen significantly in the last couple of years.”
The rising value of Facebook’s shares is creating complications for the company. External trades factor into the company’s own internal valuation, which in turn affects the pricing and quantity of restricted stock units awarded to new employees.
“Facebook has tried to clamp down on sales of stock by its own employees,” said Brian Erb, partner Ropes and Gray, a law firm that works with private companies to price their stock. “They’re probably not particularly happy about shares being sold on the secondary market.”
However, Mr Erb said the split might in fact make the stock more liquid on the secondary market. “It’s a little odd that they would want to reduce the stock price, which might make it little easier to trade on the secondary market,” he said.
The split applies to both common stock and preferred shares, which have additional rights. It also applies to stock options and restricted stock units, which employees can redeem in the event of a public flotation or sale of the company.
While stock splits often come shortly before an initial public offering, Facebook has indicated that it is not preparing for an IPO any time soon.
Instead, Mr Erb said the split was likely designed to make it easier for Facebook to give new employees a meaningful number of restricted stock units.
“The stock price has gotten so high that optically the number of shares probably isn’t looking too great to new employees,” said Mr Erb. “People would rather have 1,000 shares worth $10 than 100 shares worth $100.”
Mr Thaw said the split – the third that Facebook has given its shareholders – “gives larger grants to employees without dilution to existing shareholders”.
It coincides with the premiere of The Social Network , a film about the founding of Facebook that has been dismissed by Facebook as fiction.
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