Facebook creates a dual stock structure, but denies that it 'signals' an IPO
Founded in 2004 in a Harvard dorm room, Facebook has been valued as high as $20 billion during the go-go years of the Web 2.0 bubble. Since the financial meltdown and recession, that valuation has dropped below $5 billion and hasn't been able to break $10 billion.
Despite the statements to the contrary, Facebook's creation of a dual-class voting structure, converting all current shareholders -- such as the company's founders and venture capitalists -- to Class B stock with 10 times the voting power of Class A stock, is an umistakable sign of the company's eventual IPO plans. After all, in September, Facebook said it had finally begun making money.
Larry Page and Sergey Brin -- founders of Web search juggernaut Google (GOOG) -- did the same thing before they took their company public in 2004. The New York Times Co. (NYT), the struggling newspaper company, also has a dual stock structure which allows the Sulzberger family to maintain control of the public company.
"No Plans to Go Public"
Mark Zuckerberg, Facebook's young founder, has long hinted that he hopes to build the company and eventually go public, rather than sell. He famously turned down $1 billion from Yahoo (YHOO) in 2006. Microsoft (MSFT) has also tried to buy large stakes in the company, but it had to settle for a 1.6% holding for $240 million, which established the inflated $20 billion valuation.
In a statement, Facebook said it created the dual voting classes, "because existing shareholders wanted to maintain control over voting on certain issues to help ensure the company can continue to focus on the long-term to build a great business." It added: "This revision to the stock structure should not be construed as a signal the company is planning to go public. Facebook has no plans to go public at this time."
Secondary trading in shares of the company has been possible for months.
"Existing shareholders" include Zuckerberg and other early investors, among them PayPal founder Peter Thiel; his firm, Accel; Greylock Partners; and Hutchison Whampoa titan Li Ka-Shing, Asia's richest man. It also includes many early employees. The Wall Street Journal first reported the dual-share structure.