Goldman's savvy Facebook move

The investment bank has reportedly pumped $450 million into the world's most visited website.

By TheStreet Staff Jan 3, 2011 1:14PM

Credit: © Paul Sakuma/AP
Caption: Facebook CEO Mark Zuckerberg talks about the new email service at an announcement in San Francisco, Monday, Nov. 15, 2010By Scott Moritz, TheStreet

 

Here's how the rich get richer.

 

Using its Wall Street clout and $450 million, Goldman Sachs (GS) has acquired an ownership stake in Facebook, giving the social-networking shop a potential value of $50 billion, according to The New York Times' DealBook blog.

 

Goldman has teamed with Russian investors Digital Sky Technologies, which chipped in $50 million in the deal, according to the report. Previously, Digital Sky initially acquired a 2% stake of Facebook for $200 million in 2009.

 

The move gives Goldman a potential quintuple treat, should Facebook's value continue to rise.

 

For one, Goldman gets a piece of one of tech's fastest-growing companies.

Second, Goldman gets to play a hot hand in the private market, where shares of Facebook trade beyond the reach of retail investors.

 

Third, Goldman is expected to create a so-called special-purpose vehicle that would allow its super-rich clients to invest in Facebook.

 

Fourth, Goldman will collect millions of dollars in IPO fees as it takes Facebook public.

 

Fifth, Goldman, having pumped Facebook with an early private investment, can dump the shares in an eager public market.

 

Facebook is not expected to go public until 2012, but the heavy interest in the private shares may force the company to make a public offering before then. The Securities and Exchange Commission requires companies with 500 or more investors to file quarterly financial reports for public scrutiny.

For comparison, search giant Google (GOOG), which had attracted heavy investor interest trading privately, was effectively forced to make a public offering of shares in 2004.

 

Assuming Facebook is on the same path that Google took, Goldman may also get to ride the IPO gravy train as one of the syndicate firms to bring the company public.

 

For the savvy folks at Goldman, the $450 million pumped in today may be attractively priced to dump during a post-IPO glow.

 

As an interesting side note, Goldman Sachs, which was appointed along with Morgan Stanley (MS) to lead Google's IPO in 2004, was later kicked off Google's underwriting team for arranging sweet deals for big investors.

 

So maybe Goldman will have to settle for only four out of five lucrative Facebook treats.

 

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3Comments
Jan 3, 2011 2:19PM
avatar

Are we to watch history repeat itself with another .com bust in a few more years?

Jan 3, 2011 2:09PM
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Facebook is not worth 50 billion anyone that believes this is a FOOOOOL...what do they generate in revenue advertising dollars...maybe. Another example of internet investment into a organization that provides no tanglible service....remember yahoo stock prices??
Jan 3, 2011 1:51PM
avatar
So is Facebook really 'worth' $50 billion or is it another case of an investment firm hyping a company to increase its profits.  Remember all of the hype during the .com days in the late 90's.  Millions were made by investments firms and their buddies during IPO's of .com comanies and when the common investor got into the act 'poof', suddenly those shares weren't so valuable.
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