Strategic Intelligence for CFOs, Finance Directors, Controllers and Treasurers in Asia |
2013, May 20
2013, May 20 Facebook Inc.'s IPO flop proves that a Chief Financial Officer can make or break an initial public offering.
Facebook co-founder and CEO Mark Zuckerberg delegated the lead IPO role at the company to CFO David Ebersman.
Reports say that upon assurance from the lead underwriter Morgan Stanley that there was plenty of demand, Ebersman decided to hike the price the company was charging investors – $38 – and boost the number of shares the company would offer investors by 25%.
The decision by Ebersman, however, resulted in losses for investors. Facebook shares tumbled $3.03, or 8.9%, to $31 on the second full day of trading, after falling 11% on the first day. Facebook stock lost 20% of its value in only three days.
According to the Wall Street Journal, people familiar with the planning said that Ebersman kept a close grip on every important decision on the stock offering, not deferring to his bankers the way many companies do. It seemed Ebersman only trusted Morgan Stanley's Michael Grimes.
The other lead underwriters are Goldman Sachs and JP Morgan.
Before the offering, there were already negative signs. In the middle of the IPO roadshow, analysts at Facebook's IPO underwriters had cut their estimates for the company, following a filing that said the company's ad-sales growth isn't keeping up with expansion of its user base. Also, the company's revenue and profit had declined in the first quarter, from the fourth quarter of 2011.
Analysts cutting estimates is generally regarded as significant negative news for stocks.
The company is now facing a lawsuit from angry shareholders and multiple investigations from regulators over the mishandling of its initial public offering last week.
The entire fiasco may be a good lesson for CFOs in companies that are planning an IPO. There is no room for greed and incompetence in the IPO planning process. Selling too many shares at too high a price make it appear that insiders are cashing out at the public's expense.
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Yes that's a lesson worth learning. You sum up everything well.