They are doing a dual class offering. The class B shares (i.e. those held by Zuckerberg and other insiders) are going to have ten times the voting rights as the class A shares.
I wouldn't by into such an ownership structure, though to be fair, google has such a structure and those that bought that at IPO have done very well so far.
From the risks section:
As a result of voting agreements with certain stockholders, together with the shares he holds, Mark Zuckerberg, our founder, Chairman, and CEO, will be able to exercise voting rights with respect to an aggregate of XX shares of common stock, representing a majority of the voting power of our outstanding capital stock following our initial public offering. As a result, Mr. Zuckerberg has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, Mr. Zuckerberg has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to control the election of our directors. Additionally, in the event that Mr. Zuckerberg controls our company at the time of his death, control may be transferred to a person or entity that he designates as his successor. As a board member and officer, Mr. Zuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally.
> and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally.
So he must act in good faith except when he doesn't. Got it.
No, he must act in good faith when acting in his capacity as a board member and corporate officer. When acting in his capacity as a shareholder, he has no such obligation. The line between the two roles is usually pretty clear.
Think of a member of a military. They have a clear duty to act according to the policy and orders of their superiors. But in most nations, they can also vote, in their personal capacity as citizens, to change the top level of leadership, and they have no obligation to exercise their vote in furtherance of anyone's agenda but their own.
Zuckerberg's position is similar. What's out of whack is that he controls a majority vote of the "citizenry" (shareholders) himself.
I don't know a lot about stock, so if you could explain to me how this works I'd be very thankful. Facebook is worth something like $100 billion, but their IPO is only for $5 billion. Doesn't that mean 95% of the company is still owned by... Facebook? (??) What fraction of the company are they selling by having a $5b IPO?
$5 billion is the value of the new shares that are being issued as part of the ipo. The valuation is expected to be between 75 and 100 billion, so essentially that means FB is selling between 5 and 6.6 percent of the company to raise the $5 billion. In that sense, it works exactly the same way that a new round of funding works from a VC. It doesn't however, mean that 95% of the company is owned by "facebook" since those shares can (presumably after some lockup period) be traded publicly. A lot of employees and investors, for example, will probably unload some of their shares on the public market.
I'm interested to hear why you wouldn't buy into that structure - is it a concern w/ Zuckerberg himself or an aversion to any situation where a single entity has majority voting rights?
Share ownership without votes is participation but not real ownership. In the long run companies can end up not being run in the interests of the shareholders. Most companies with these structures are valued at less than they would be with a normal structure. Classic example is News Corp where the Murdochs keep control with a minority ownership and run it much like a private company.
A public company should be public not half private.
I would under some circumstances, but there are absolutely no circumstances under which I would be prepared to invest in a company where one person has majority voting power. At least with Google, no single person's psychotic break can bring down the company.
I wouldn't by into such an ownership structure, though to be fair, google has such a structure and those that bought that at IPO have done very well so far.
From the risks section:
As a result of voting agreements with certain stockholders, together with the shares he holds, Mark Zuckerberg, our founder, Chairman, and CEO, will be able to exercise voting rights with respect to an aggregate of XX shares of common stock, representing a majority of the voting power of our outstanding capital stock following our initial public offering. As a result, Mr. Zuckerberg has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. In addition, Mr. Zuckerberg has the ability to control the management and affairs of our company as a result of his position as our CEO and his ability to control the election of our directors. Additionally, in the event that Mr. Zuckerberg controls our company at the time of his death, control may be transferred to a person or entity that he designates as his successor. As a board member and officer, Mr. Zuckerberg owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. As a stockholder, even a controlling stockholder, Mr. Zuckerberg is entitled to vote his shares, and shares over which he has voting control as a result of voting agreements, in his own interests, which may not always be in the interests of our stockholders generally.