Goldman's savvy Facebook move
The investment bank has reportedly pumped $450 million into the world's most visited website.
By 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.
Are we to watch history repeat itself with another .com bust in a few more years?
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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