Bankers Got Too Aggressive With Pricing Facebook As They Struggled To Keep Shares Above $38

Next Story

Gillmor Gang Live 05.18.12 (TCTV)

The underwriters of Facebook’s $16 billion debut on NASDAQ fought to the finish to keep the company’s shares above last night’s final price of $38 a share. Shares closed at $38.23 today. Sources tell us that the syndicate of banks underwriting the deal have been putting in buy orders to keep its price afloat. For Facebook itself, it’s actually a great outcome as the company didn’t leave any money on the table. But bankers on the wealth-management side of the underwriters are sure to be unhappy. Plus, the company’s tepid premiere is killing the performance of tech stocks across the board.

Basically, what we hear is that the underwriters including Morgan Stanley, JPMorgan and Goldman Sachs, got too pushy in the final days before the IPO about pricing. Earlier this month, the company was slated to open at a $28 to 35 price range, but that range was pushed up to $34 to 38 a share. Then Facebook priced at the very high end at $38 last night.

“The only thing keeping it at $38 are support mechanisms,” a source tells us. “There just wasn’t the institutional investor demand that people thought there would be.” They added that about 20 percent of buying orders seem to be coming from retail investors (e.g. regular people), which is “unprecedented.”

Reuters estimates that the lead underwriter Morgan Stanley theoretically could have spent up to $2 billion to prop up the stock, if you look at volumes in the last 20 minutes of trading when Facebook was close to breaking under.

Because prices are being held up to avoid a negative finish, shares might dip lower into early next week. Already, we’re seeing the impact on other stocks across the board. Zynga is down 13.4 percent to $7.16. LinkedIn is down 5.9 percent to $99.02. “They’re all in the shitter because now they look expensive since Facebook didn’t go anywhere,” we’re told.

From Facebook’s perspective, the company shouldn’t care. The company and its early shareholders raised $16 billion at the very best price they could, leaving no money on the table for the underwriters’ wealthy clients to scoop up and sell for a quick profit.

Bill Gurley, who is a general partner at Benchmark Capital (which has a take in Facebook through the company’s acquisition of FriendFeed), said that the price was spot on in a tweet.

“This is way better than retail investors buying in an an inflated “pop” price,” he tweeted. Gurley bets that underwriters who propped up the stock will probably make a profit.

Plus, CEO Mark Zuckerberg has warned investors that he won’t be concerned with short-term fluctuations in the stock. From the very beginning, he has said that Facebook was originally not meant to be a company.

He even said today before the market opened, “Going public is an important milestone in our history. But here’s the thing: our mission isn’t to be a public company. Our mission is to make the world more open and connected.”