Facebook to file $5 billion IPO tomorrow (rumor)

Facebook to file $5 billion IPO tomorrow (rumor)

Summary: The latest rumor claims Facebook is filing for its initial public offering (IPO) tomorrow. The company is reportedly looking to raise $5 billion, not the previously expected $10 billion.

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Facebook was previously expected to raise $10 billion, giving it a valuation of around $100 billion. The company has shrunk its initial public offering (IPO) to $5 billion, and will file papers tomorrow morning with the Securities and Exchange Commission (SEC), according to sources close to the deal cited by IFR. The timing is in line with a rumor from last week which said Facebook would file for its IPO this week, possibly as early as Wednesday.

In a meeting early this afternoon, Facebook board has approved the number, according to several sources close to the situation cited by All Things D. While the $5 billion number is less than what the social networking giant was projected to raise, it could be increased to ultimate investor demand. It would appear Facebook wants to start with a conservative base before deciding whether to increase; Menlo Park is clearly hoping to stir up demand for its stock by limiting supply. This will likely be one of the most watched technology IPOs in recent years, as it will be the largest ever to emerge from Silicon Valley.

Morgan Stanley is once again being named as the most likely to grab the coveted lead left role. "Lead left" refers to where the top underwriter's name will appear on the IPO prospectus. The other contender, Goldman Sachs, will likely be on the initial list of bookrunners on the deal, along with Bank of America Merrill Lynch, Barclays Capital, and J.P. Morgan. While it appears that Facebook has hired five bookrunners, the list could still grow (but it's unlikely to shrink). The company has been unusually guarded about the process for selecting banks involved in the underwriting syndicate, but Morgan Stanley's market leading position in Internet IPOs ultimately helped it secure the leading role.

Morgan Stanley has led more U.S. and worldwide Internet IPOs than any other Wall Street firm in 2011, and has also been the leading participant in 2011 tech IPOs. Goldman Sachs meanwhile led the league for global IPOs of all kinds last year, and it also ran the social networking giant's private offering, although its relationship with Facebook has reportedly been frayed. The race to lead the management of Facebook's IPO has been a huge deal on Wall Street in the past year, since for investment banks it means tens of millions of dollars in fees, not to mention the bragging rights. Whoever loses out on the lead position, and that party is increasingly looking like Goldman Sachs, will take it as a huge blow, as both have been courting the social networking giant and its executives for months, if not longer. Still, all the companies involved will likely snag significant fees.

Aside from the Morgan Stanley versus Goldman Sachs battle, there's also another one happening between Duncan Niederauer's New York Stock Exchange (NYSE) and Robert Greifeld's Nasdaq. Both want to have the company's stock symbol, which is already finalized as FB, on their exchange, and have been campaigning aggressively for the listing during the past year, trying to sway Facebook CFO David Ebersman and other executives.

The biggest question is of course: how much is the social networking giant really worth? Even if Facebook files for its IPO tomorrow, we won't know the company's valuation until right before the offering, which typically occurs about three months later. We've heard this before in at least one rumor: May 2012 is the timeframe to look forward to.

Between tomorrow and then, analysts will be poring over Facebook's filing to see how the company plans to make money in the future, and what could possibly go wrong. The company is set to pass 1 billion users this year, but it's still working on the best way to make money from them.

Nevertheless, investors are always eager to know what would happen if Facebook would go public right now. For a while now, employees and early stakeholders have been able to sell shares privately on SecondMarket and SharesPost. The latest auction from the latter ends Thursday at a share price of $35.50, which gives Facebook an implied valuation of $83.5 billion. This number will of course change: private shares can still be traded on secondary markets after the filing, though of course Facebook will restrict transactions as the date of the public offering nears.

This May timeframe is assuming a smooth registration process with the SEC and that questions from regulators won't get in the way. When it comes to the company going public, we've already heard it all: in Q1 2012, Q2 2012, or even later, depending on which rumor and sources you want to believe.

Facebook co-founder and CEO Mark Zuckerberg has frequently stated, both publicly and privately, that he is against the idea of rushing the company into an IPO. He's worried, like many company founders before him, that he'll lose key employees working on various products to a simple obstacle that plagues everyone: greed. Some workers are supposedly keen to cash out in an IPO, but their boss wants to keep them around until at least the summer in order to complete certain feature rollouts. Facebook doesn't need to push for an IPO because it really doesn't need the money right now. The advantage of staying private is focus: you don't have to worry about investor phone calls or show up at investor conferences.

On the other hand, the company may be motivated to hurry up the process in order to increase employee compensation. In early 2010, Facebook put curbs on employees' ability to sell their company shares privately to other investors. To stop employees from quitting the social networking giant in order to monetize their shares, the company needs to go public so employees can sell their stock on the open market at various times during the year and cash in on their holdings. Furthermore, extra money wouldn't hurt: as competition with Google heats up, some extra fire power might be needed.

In December 2010, Facebook announced that it had raised $1.5 billion at a valuation of approximately $50 billion, but that it had no immediate plans for the funds and would simply continue to build and expand its operations. The transaction consisted of two parts: in January 2011, Goldman Sachs completed an oversubscribed offering to its non-US clients in a fund that invested $1 billion in Facebook Class A common stock, while in December 2010, Digital Sky Technologies, The Goldman Sachs Group, and funds managed by Goldman Sachs, invested $500 million in Facebook Class A common stock at the same valuation.

While its valuation is unknown, many are looking for to see if it will pass the rumored $100 billion mark. That's just a nice round number though: the real valuation is unlikely to have the perfect 12 digits, but of course everyone wants to know how close it will be to it. In short, the only official number we have is $50 billion. Investments have been made valuing the company at $70 billion while sales on secondary markets have priced it in the $80 billion range. The expected valuation is anywhere between $75 billion to $100 billion, and there's lots of time for even that to change.

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Topics: Social Enterprise, Banking, Legal

Emil Protalinski

About Emil Protalinski

Emil is a freelance journalist writing for CNET and ZDNet. Over the years,
he has covered the tech industry for multiple publications, including Ars
Technica, Neowin, and TechSpot.

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  • Perfect 12 digits

    $100,000,000,000 = twelve digits
    The Star King