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BUS1 173A – Financial Management – Theory and Policy Team Project #2 Facebook IPO and Corporate Governance Research Analysis (40 points) This project provides an opportunity to get some hands-on experience applying corporate finance theory and models to real firms. This is a group project. Each group should have 4 to 5 individuals. The group should write one report (in either Excel or Word) and upload it to Canvas by Friday, November 17th. Late assignments will not be accepted. The report should be well organized, clearly written, and free of grammatical and spelling errors. The report should also be free of plagiarism. Please cite the source whenever using someone else’s idea in you report, even if paraphrasing the idea. Facebook’s public offering on May 18, 2012 was the biggest IPO in Internet history, easily topping Google’s initial public offering eight years earlier. Your assignment is to analyze the IPO and evaluate current corporate governance of Facebook. 1. Begin by navigating to the SEC EDGAR Web site, which provides access to company filings: http://www.sec.gov/edgar.shtml. Choose “Search for Company Filings” and pick search by company name. Enter “Facebook” and then search for its IPO prospectus, which was filed on the date of the IPO and is listed as filing “424B4” (this acronym derives from the rule number requiring the firm to file a prospectus, Rule 424(b)(4)). From the prospectus, calculate/determine the following information (show your work): a. The underwriting spread in percentage terms. How does this spread compare to a typical IPO? b. The size, in number of shares, of the greenshoe provision. What percent of the deal did the greenshoe provision represent? c. The list of underwriters/investment banks of the underwriting syndicate. 2. Next, navigate to Google Finance and search for “Facebook.” Using the data provided by Google Finance calculate the following information (show your work): a. Determine the closing price of the stock on the day of the IPO (use the “Historical prices” link). What was the first day return? How does this return compare to the typical IPO? b. Calculate the performance of Facebook in the three-month post-IPO period. That is, calculate the return an investor would have received if he had invested in Facebook at the closing price on the IPO day and sold the stock three months later. c. What was the return for a one-year holding period? 3. Prior to the public offering, Facebook was able to raise capital from all the sources mentioned in class. Let’s concentrate on one particular source, Microsoft Corporation. a. Microsoft made one investment in Facebook, during October 2007. Go to Facebook’s corporate news Web site (http://newsroom.fb.com) and locate the press release announcing this investment. Using the information in that press release and the number of shares owned by Microsoft listed in the IPO prospectus, calculate the per share price Microsoft paid. b. How much money did Microsoft receive from the IPO (assume Microsoft sold all shares in the IPO)? c. Calculate the holding period return (using the IPO price) that Microsoft earned on its investment. 1 BUS1 173A – Financial Management – Theory and Policy 4. Facebook had only one angel investor, Peter Thiel (the founder of PayPal). Mr. Thiel invested more than once in Facebook, both as an angel and, in later rounds, on behalf of investors in his venture capital firm, Founders Fund. As an angel, Mr. Thiel invested $500,000 in September 2004. Assuming that all the shares he received in the angel round were registered under the name Rivendell One LLC, use the information in the prospectus to calculate: a. The per share price he paid as an angel. b. The amount of money he received from the IPO (if all shares are sold). c. The holding period return (using the IPO price) he made on his investment. 5. Using the information provided in the Facebook prospectus, and in the annual report and other documents available on the Facebook’s investor relations webpage, analyze various available corporate governance mechanisms (e.g., the structure of the board, executive compensation, etc.) and give your opinion of the governance of Facebook. 2 Team Project #2 Facebook IPO and Corporate Governance Research Analysis 1. a. The underwriting spread% = Underwriting Discounts and Commission per share/public share price = $(0.418/38) * 100% = 1.1% Explanation: The underwriting spread by Facebook is comparatively lower when compared to a typical IPO. b. For up to an additional 63,185,042 shares of Class A common stock to coverallotments, the green shoe provision would be 15% . c. The list of underwriters/investment banks of the underwriting syndicate: Morgan Stanley & Co. LLC J.P. Morgan Securities LLC Goldman, Sachs & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Barclays Capital Inc. Allen & Company LLC Citigroup Global Markets Inc. Credit Suisse Securities (USA) LLC Deutsche Bank Securities Inc. RBC Capital Markets, LLC Wells Fargo Securities, LLC Blaylock Robert Van LLC BMO Capital Markets Corp. C.L. King & Associations, Inc Cabrera Capital Markets, LLC CastleOak Securities, L.P. Cowen and Company, LLC E*TRADE Securities LLC Itau BBA USA Securities LLC Lazard Capital Markets LLC Lebenthal & Co., LLC Loop Capital Market LLC M.R. Beal & Company Macquarie Capital (USA) Inc. Muriel Siebert & Co., Inc. Oppenheimer & Co., Inc Pacific Crest Securities LLC Piper Jaffray & Co. Raymond James & Associates, Inc. Samuel A. Ramirez & Company, Inc. Stifel, Nicolaus & Company, Inc. The Williams Capital Groups, L.P. William Blair & Company, L.L.C. 2. a. Closing price of the stock on the day of the IPO: $38.23 The first day return = (closing price-opening price)/opening price = (38.23-38)/38 = 0.006053 = 0.6% When looking at both returns, Facebook has a holding period return and an annualized return that is much larger than the returns of a typical IPO. b. Holding period return (three-month period on Aug 17, 2012): ($19.05$38.23)/$38.23=-50.17% Annualized return: (1-0.5017) ^12/3-1=-93.83% c. Holding period return for one year on May 17, 2013: ($26.25-$38.23)/$38.23=-31.34% 3. a. Microsoft had an initial investment of $240M into Facebook. Microsoft obtained 26,227,701 shares (about 26.2 million), a 1.7 percent stake, of Facebook after the IPO. Microsoft had invested $240 million dollars worth of shares, equaling to 26,227,701 (million) shares. For price per share, Microsoft paid $26 dollars and had initially invested $240 million dollars. Then, the price of one share can be: $240 million / 26.2 million shares = $9.16 per share. Therefore, in order to obtain 26.2 million shares of Facebook, Microsoft paid $9.16 a share. b. The money that Microsoft received from IPO: Revenue: $38.23*26.2 million = $1001.63 million Cost: -$240,000,000 Money received from IPO = Revenue-Cost =$(1001.63-240) million = $7616.63 million c. Holding period return= (38.23-9.16)/9.16= 317.36% https://newsroom.fb.com/news/2007/10/facebook-and-microsoft-expand-strategicalliance/ 4. a. The per share price he paid as an angel: Investment amount/number of shares = $500,000/32,875,670 shares = $0.0152 dollar per share b. The amount of money he received from the IPO = 16,844,315 shares * $38.23 = $643,958,162.45 dollars, or $643,958,163 dollars. =$38.23*32,875,670=$1,256,836,864 c. 5. Facebook. Facebook is a mobile application and website that enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers. We had 1.04 billion daily active users (DAUs) on average in December 2015, an increase of 17% compared to December 2014. We had 934 million DAUs who accessed Facebook from a mobile device on average in December 2015, an increase of 25% compared to December 2014. There are a number of different ways to engage with people on Facebook, the most important of which is News Feed which displays an algorithmically-ranked series of stories and advertisements individualized for each person.
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Team Project #2
Facebook IPO and Corporate Governance Research Analysis

1.

a. The underwriting spread% = Underwriting Discounts and Commission per share/public
share price = $(0.418/38) * 100% = 1.1%
Explanation: The underwriting spread by Facebook is comparatively lower when
compared to a typical IPO.
b. For up to an additional 63,185,042 shares of Class A common stock to coverallotments, the green shoe provision would be 15% .
c. The list of underwriters/investment banks of the underwriting syndicate:
Morgan Stanley & Co. LLC
J.P. Morgan Securities LLC
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Barclays Capital Inc.
Allen & Company LLC
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Deutsche Bank Securities Inc.
RBC Capital Marke...


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