Zynga Files For $400M Secondary Offering As It Tries To Manage Employee Share Sales

Zynga said today that it is registering for a $400 million secondary offering of shares as it tries to manage a lock-up period for employees that might negatively affect the company’s share price. Employees aren’t allowed to sell shares until a certain number of days after the initial public offering. Most of those shares are tied to a lock-up date on May 28, but a certain number can be sold starting around April 30.

Zynga won’t receive any proceeds from the sale. Like in its initial public offering, Morgan Stanley and Goldman, Sachs & Co. are the lead underwriters, while Bank of America Merrill Lynch, Barclays Capital, and J.P. Morgan are contributing book runners. Bloomberg first reported about this offering yesterday, and Zynga’s shares dropped about 3 percent on the news. They’re currently trading at $13.60 ahead of the market opening, up 1.7 percent from yesterday’s close.

The company says it’s doing this to “facilitate an orderly distribution of shares and to increase the company’s public float.” Zynga is trying to avoid a situation that has happened to other companies with recent initial public offerings. LinkedIn’s shares dropped to an all-time low a week after its lock-up period ended, when employees were finally allowed to start selling their own shares. Demand Media’s shares also fell 7 percent following the end of its lock-up period.

Most of Zynga’s outstanding shares are subject to a lock-up that ends on May 28. But non-executive employees will be able to sell a certain amount of shares until the third business day following Zynga’s first quarter earnings report, which will happen during the last week of April.

So the big date is on May 29, then there’s another release on July 6 for directors and executive officers. There’s another lock-up release data for directors and executives on August 16.