Facebook rules out share sale to cover US$2bil tax bill

SAN FRANCISCO: Facebook Inc
promised not to sell stock to cover a nearly US$2 billion tax bill and
said it will allow employees to cash in their stock weeks ahead of
schedule, moving to soothe nervous investors and its own staff as its
share price spirals downward.
The world's largest online social
network company, which has lost more than 50 percent of its market
value since going public in May, said on Tuesday its total shares
outstanding will be reduced by roughly 101 million shares as a result
of the move.
Shares of Facebook rose 1.8 percent in after hours trading to $18.05.
Facebook
will cover the stock compensation tax bill with existing cash and with
borrowing from its credit facilities, the company said in a regulatory
filing.
"The fact that they are using cash is a good thing. It
feels like a mini buyback in a way because you're in essence reducing
your share count by 101 million shares," said Susquehanna Financial Group analyst Herman Leung.
Facebook
has suffered a painful debut on the public markets, as investors have
fretted about its slowing revenue growth and a large pool of additional
shares set to hit the market as "lock-up" restrictions on employees
selling shares expire.
"Coming out and showing that they're being a little more active in supporting the stock is good for investors," said Baird & Co analyst Colin Sebastian.
"These
are the kinds of things they can do until the figure out how to better
monetize the sites, to help alleviate some of the pressure on the
stock," he said.
While Facebook, with 955 million users, is challenging entrenched Web companies such as Google Inc for consumers' online time, Wall Street has become increasingly skeptical about its long-term money-making potential.
Earlier on Tuesday, analyst Scott Devitt of Morgan Stanley,
which acted as the lead underwriter for Facebook's IPO, cut his price
target for Facebook to $32 a share from the IPO price of $38. JP
Morgan, which also underwrote the IPO, cut its price target to $30 from
$45 on Tuesday.
Shares of Facebook set a new low of $17.55 Tuesday, before closing at $17.73 on Nasdaq.
Chief Executive Mark Zuckerberg
will not sell any shares in Facebook for at least 12 months, while
directors Marc Andreessen and Donald Graham will sell some shares to
cover their tax obligations, according to the filing. Other than the
tax-related sales, Facebook said Andreessen and Graham have no plans to
sell any shares held by them personally.
Facebook said it has
waived a "market stand-off provision" that prohibited employees from
selling shares until November 14. As a result, employees will now be
able to sell their vested shares on October 29 - four trading days
after it reports third-quarter financial results on October 23.
About 234 million shares held by employees will be eligible for sale in the public market on October 29, it added.
Allowing
employees to sell sooner could win Facebook some points from staff who
have been unable to cash out any equity as the stock has steadily
declined even as other insiders and early investors have sold, said Pivotal Research Group analyst Brian Wieser.
And
the move could help make the massive share lock-up expirations less
disruptive to the stock, by breaking up some of the big portions of
shares set to become available for trading, he said.
"That helps with the digestion of these shares," said Wieser.
More
than 1 billion Facebook shares held by employees, insiders and early
investors are set to become available for trading by year's end.
Facebook
estimated in the filing that it will owe roughly $1.9 billion in tax
obligations as a result of the vested restricted stock units that its
employees have been compensated with, assuming a 45 percent tax rate
and based on Thursday's closing price of $19.09.
"We currently
do not expect to conduct any offering of our equity securities near the
initial RSU settlement date to fund this obligation," Facebook wrote in
the 8-K filing on Tuesday. Facebook also said it did not expect to
conduct any offering in connection with the expiration of the lock-up
restrictions in the fourth quarter. - Reuters