Facebook Inc. (FB:US) Chief Executive Officer Mark Zuckerberg, faced with a plummeting stock price and deluge of shares hitting the market, said he won’t start selling his holdings in the company for at least a year.
Zuckerberg has yet to adopt a share sale plan, the Menlo Park, California-based company said today in a filing with the U.S. Securities and Exchange Commission. Typically, insiders use plans to pare their stakes over time to avoid flooding the market. Zuckerberg owns 444 million shares of Class B stock and 60 million shares issuable upon the exercise of an option.
Facebook’s shares have been marking record lows since the first share sale lockup for insiders expired in August and on concern that businesses are spending less to advertise on the world’s largest social-networking website. Even with the 53 percent plunge (FB:US) in the share price since the May 17 initial public offering, Facebook still trades at 33 times earnings over the next year, compared with 14 for Apple Inc. (AAPL:US)
“The whole problem with the stock has been with the lockups coming up,” said Herman Leung, an analyst at Susquehanna International Group in San Francisco, who has a positive rating on the shares. Today’s filing “offers the market a little more transparency,” he said.
Facebook rose as much as 2.9 percent in after-hours trading to $18.24 after closing in New York at $17.73, the lowest since the IPO.
Facebook board members Marc Andreessen and Donald Graham also said they have no “present intention” to sell shares in Facebook, other than to settle tax obligations, the filing said. Director Peter Thiel, an early investor in Facebook, sold more than $1 billion worth of Facebook shares in the IPO and after the end of the first lockup, a move that analysts and other venture capitalists described as “unprecedented.”
The company shortened the lockup period for certain employees, so 234 million shares will now be available for sale on Oct. 29, instead of Nov. 14. After today’s amendment, and accounting for the shares that Zuckerberg won’t sell, the total number freed up for sale by insiders through November will shrink to 1.01 billion from 1.44 billion previously, according to the filing.
Facebook is also spending an estimated $1.9 billion to buy back 101 million shares from early employees, instead of issuing shares to cover tax obligations. To fund the buyback, Facebook is using “our existing cash and borrowings from our credit facilities.” Facebook had $10.2 billion in cash and equivalents (FB:US) at the end of June.
On Aug. 16, Facebook unlocked 271.1 million shares, the first of five insider sale restrictions scheduled during its first year as a public company.
Three months earlier, Zuckerberg sold 30.2 million shares Facebook for $1.15 billion at the offering. Most of the proceeds will be used to pay taxes associated with exercising 60 million stock options.
-- Editors: Reed Stevenson, Stephen West
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