Facebook Announces Secondary Offering Of 70M Shares, Raising Around $4B, As It Joins S&P500 Index

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Some steps ahead for Facebook in its life as a huge public company: it’s selling some 70 million shares worth around $4 billion in a secondary offering and joining the S&P 500 Index, while Zuckerberg is will be making a philanthropic gift of 18 million Class B shares, worth potentially $1 billion.

The social network today announced that it would be making an offering of 70 million shares of Class A common stock — 27,004,761 shares from Facebook, and 42,995,239 shares from “certain selling stockholders,” with 41,350,000 shares coming from CEO and co-founder Mark Zuckerberg, and 1.6 million shares from VC Mark Andreessen.

Going by the closing share price on December 18 of $55.57/share, this would value the sale at nearly $3.9 billion. The actual price will be determined at the close of market today, Thursday, December 19.

Standard & Poor’s is adding Facebook’s Class A common stock to the S&P 500 Index — a measure of the company’s influence on the wider market. It will mean that shares of Facebook’s Class A common stock will be offered “primarily to index funds whose portfolios are primarily based on stocks included in the S&P 500 Index.” It’s getting added at the close of trading on December 20, 2013.

Facebook does not give any specific details about how it would use the capital raised in the offering, but there are a few things to note here:

First, Facebook notes that it will be used for working capital and general corporate purposes:

“Our principal purpose for selling shares in this offering is to obtain additional capital. We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes; however, we do not currently have any specific uses of the net proceeds planned. Additionally, we may use a portion of the proceeds to us for acquisitions of complementary businesses, technologies, or other assets.”

This is a fairly routine reason given for secondary offerings, except that on the subject of acquisitions, Facebook has been in the news of late. Specifically, it had been rumored to be eyeing up the hot new ephemeral photo messaging app Snapchat, reportedly making an offer to buy it for $3 billion — raising money today potentially puts Facebook into play to acquire something, if not Snapchat.

Second, part of the reason for secondary offering is because you when you are added to S&P 500 Index you have access to more investor capital so it makes sense to release shares at that time.

Third, Facebook notes in its S-3 form the ongoing legal case around securities violations during its IPO last year and “seeking unspecified damages.” It further notes that “We believe these lawsuits are without merit, and we intend to continue to vigorously defend them,” but also that “Such lawsuits or inquiries could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business.” This potentially could be one other area where the proceeds of this offering may get used.

Regardless, Facebook notes that it “will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders.” In particular, Zuckerberg’s proceeds from the sale will be used to pay down tax obligations: “to satisfy taxes that he will incur in connection with the exercise, in full, of an outstanding stock option to purchase 60,000,000 shares of Class B common stock.” The 27 million shares being sold by Facebook, at yesterday’s closing share price, works out to around $1.5 billion.

Charitable donations
The filing also lifts the curtain a bit on the extent of Zuckerberg’s philanthropic efforts. It notes that Zuckerberg intends to make a gift of approximately 18,000,000 shares of Class B common stock this month. The donation of these shares, a spokesperson tells me, will go to the Silicon Valley Community Foundation, which includes Zuckerberg’s educational and life sciences charitable efforts.

“These shares will be converted to Class A common stock in connection with Mr. Zuckerberg’s donation,” Facebook notes in the filing. There is no way to forecast what the value of the Class B stock will be when he decides to convert those shares to cash, although, again, going by the share price yesterday, this works out to just over $1 billion.

Facebook notes that J.P. Morgan, BofA Merrill Lynch, Morgan Stanley and Barclays are joint bookrunners for the offering. BNP Paribas, Citigroup, RBC Capital Markets, Credit Suisse, HSBC, Standard Chartered and Piper Jaffray are co-managers for the offering.