Facebook investors get out early

Some of the company's largest partners are selling some shares. Is it a bad sign?

By Kim Peterson May 16, 2012 3:05PM
Facebook's (FB) early investors plan to sell major stakes in the company's initial public offering this week. Is this a red flag for investors or simply smart business?

After seeing so much investor enthusiasm for the IPO, early shareholders like Accel Partners are boosting the amount of shares they're selling. Accel has raised its amount by 28%, and will now offer more than 49 million shares in the IPO.

Facebook is estimating an IPO price of between $34 and $38 a share (the official amount will likely be decided Thursday). At the midpoint of that range, $36 a share, Accel stands to make nearly $1.8 billion.

Accel will still hold 144.4 million Class A shares and nearly 8 million Class B shares after the IPO. So I don't look at this with the same skepticism as The Wall Street Journal, which says that "the smart money is flying out of Facebook as the dumb money piles in."

I think is a natural move for Accel to reduce its risk -- and take home a whopping check in the process. Does the selloff mean Accel thinks Facebook will drop like a stone? Of course not. If Accel really thought that, it would be cashing out a lot more.

Goldman Sachs (GS) is dumping a much bigger stake. Facebook's latest regulatory filing shows that Goldman will sell 28.7 million shares, or about 43% of its holdings.

Venture capitalist Peter Thiel will sell 16.8 million shares, pocketing about $606 million. He's holding on to nearly 19 million Class A shares and 9 million Class B shares.

Facebook's CEO isn't increasing the 6% of his stake he had already planned to sell.

At least one investor said all of this investor dumping could be viewed badly. "When you see insiders unloading their stakes, you start to wonder why," one chief investment officer told Bloomberg. "I could see it turning some institutional investors off."

Facebook and its existing holders have increased the total shares offered in Thursday's IPO to 421.2 million from the previous 337.4 million. The deal's underwriters also have the option to buy as many as 63.2 million more shares after the IPO.

At the high point of Facebook's estimated IPO range, or $38 a share, Facebook would raise slightly more than $16 billion. That would be the second-largest IPO in U.S. history, Bloomberg reports, behind the $17.9 billion raised by Visa (V) in 2008.

Compare this with other tech IPOs, which didn't see nearly the same amount of early selling, writes the Journal's Rolfe Winkler:

Another interesting wrinkle is the comparison with previous tech IPOs. At Groupon, insiders and early investors didn’t sell any of their stake in its IPO. LinkedIn’s IPO similarly saw very little selling. At Zynga, insiders and early investors sold just 7% of their stakes on average.
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Tags: FBGSIPO
13Comments
May 16, 2012 4:45PM
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A disaster of epic proportions waits those that buy this stock.
May 16, 2012 5:11PM
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       FB =   Foolish Buy.

May 16, 2012 4:50PM
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Is it a bad sign? Of course it is. 

What exactly is an IPO? It is an opportunity for insiders to cash out. If a company is making money hand over fist, why share with anybody else? 

And that is why most IPO's suck.


May 16, 2012 5:49PM
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Everyone is ballyhooing to make this bigger than it really is, they want to bring back the 80's again and wishing it to be through a facebook IPO. I personally think this is goin to be a bust stock because of all the overhyping of FB to begin with. It is a fad to be sure, will it go away I doubt it but it will become more and more useless to the mainstream society, It is certainly not my gig. Once Corporate America decides to block out farmville it will kick it in the shorts but good. It's time to get people back to work and stop dickin around on FB.

 

When evening news is braggin it up it's surely a setup to let the big cats out of their options for a gain and stiff the public as usual.

May 16, 2012 5:58PM
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Man 1 - I've got this company that lets you tell your friends what kind of sandwich you had for lunch.
Man 2 - I'll give you 100 billion for it.

May 16, 2012 5:48PM
May 16, 2012 5:17PM
May 16, 2012 4:48PM
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So I don't look at this with the same skepticism as The Wall Street Journal, which says that "the smart money is flying out of Facebook as the dumb money piles in."

 

What? You don't look at it that way because "Accel will still hold 144.4 million Class A shares and nearly 8 million Class B shares after the IPO"?

 

Think they'd not sell more shares if they felt doing so wouldn't set off more alarms?

 

Facebook is looking to be, in a single issue, a dot-com bust in miniature.

May 16, 2012 4:57PM
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No profit making revenue on the horizon and beyond whatsoever much less make money to reward and  sustain stock value for bag holders. Go ahead make me laugh.
May 16, 2012 5:43PM
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that's really bad news by all mean. why would lrge mega investors dump stock for more profit is unreal. these share holders already in the ride that can double their shares. if I have their mentality, I would at leat ride the high at some point and sells with more gain. i'm glad i don't have any stock in these no-brainer firms.    
 
May 16, 2012 7:28PM
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SELL, SELL, SELL, SELL !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
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