Facebook freeing 60% more shares seen weighing on its stock

Aug. 16 (Bloomberg) -- Facebook Inc. is freeing up 271.1 million of its shares today, boosting by 60 percent the number that could be traded and adding to concerns that have weighed on the stock since the company’s initial public offering.

Early Facebook investors such as DST Global Ltd., Goldman Sachs Group Inc., Elevation Partners and Accel Partners get a green light today to start selling part of their holdings, Menlo Park, California-based Facebook has said in filings. That’s after the lifting of restrictions designed to prevent a flood of shares immediately after an IPO.

The prospect of more stock sales means Facebook will need to work even harder to persuade investors that it deserves a higher valuation, compared with earnings, than all but two of its closest competitors including Google Inc. The shares freed up today make up only 14 percent of the 1.91 billion that will be available for sales in the coming nine months.

“Buckle your seatbelts for the next couple of months until they make it through all these shares coming unlocked,” said Tom Forte, an analyst at Telsey Advisory Group in New York.

The shares subject to today’s lock-up expiry are worth about $5.75 billion, based on yesterday’s closing price, and represent almost six times the average daily trading volume in Facebook stock. The restriction is being lifted for early investors, excluding Facebook Chief Executive Officer Mark Zuckerberg, who sold part of their holdings in the IPO.

Facebook declined as much as 3.2 percent to $20.52 in early trading in New York. The shares haven’t closed above the IPO price of $38 since the first day of trading. Ashley Zandy, a spokeswoman for Facebook, declined to comment.

Why Sell?

Facebook, worth $51.2 billion, has lost about $40 billion in market value since the IPO, making it the worst performer among all large IPOs on record, according to data compiled by Bloomberg.

Still, the decline has been steep enough to make some investors consider holding onto shares instead of selling as quickly as they can, said Mark Harding, an analyst at JMP Securities LLC. Shares have fallen in anticipation of the expiration of the lock-ups, he said.

“It certainly wouldn’t behoove and wouldn’t be in the shareholders’ best interest to dump the shares on the market all at once,” he said. “I would assume that all of the investors that hold the 270 million-odd shares are probably rational, and probably realize that flooding the market with that kind of supply over such a short amount of time wouldn’t help their position.”

Microsoft Corp., based in Redmond, Washington, will probably hang onto its stake after the lockup-ban lifts, a person with knowledge of the matter said on Aug. 10.

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