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Facebook halts trading on secondary markets as it readies IPO

March 28, 2012|By Jessica Guynn
  • The Facebook chalkboard wall at the company's Menlo Park, Calif. campus.
The Facebook chalkboard wall at the company's Menlo Park, Calif.… (Mark Boster / Los Angeles…)

Facebook plans to halt trading of its shares on private exchanges this week.

In other words, last call to buy Facebook shares before the IPO.

The move is part of the process of preparing for its initial public stock offering that could come as early as May.

Facebook told exchanges that broker trades of its shares to stop trading this week, two people with knowledge of the matter told Bloomberg News.

That way Facebook can account for its shareholders and put a stop to wild fluctuations in the stock as it prepares to determine an IPO valuation with its bankers. Right now on SharesPost, shares of Facebook are trading at an implied valuation of $101 billion.

"Facebook is doing everything possible to make this an orderly opening, as opposed to seeing wild swings with the pandemonium surrounding Facebook's IPO," said Scott Sweet, senior managing partner at IPO Boutique.

Facebook’s shares are actively traded on private exchanges, allowing investors and early employees to sell their holdings. Those sales have drawn scrutiny from regulators concerned that investors do not understand the risks when investing in companies that are not required to make financial disclosures.

Facebook’s implied valuation has fluctuated on the secondary markets. In late February the implied value of its shares dropped to about $93 billion when a fund with Facebook shares auctioned them.

Investors are speculating on Facebook's worth in advance of the hotly anticipated IPO. Sweet said the speculation can be "dangerous."

"People are so wound up about this IPO," Sweet said.

Facebook filed for an IPO on Feb. 1. It’s expected to be the largest ever for an Internet company.

With the filing, the Menlo Park, Calif., company has begun a months-long process in which it negotiates with federal regulators who scrutinize every line of its filing and prepares for a “road show” to market the IPO and court institutional investors such as pension funds, mutual funds and hedge funds. Investors will decide how much stock they want to buy and for how much. Given the feverish demand for Facebook shares on private exchanges, demand for Facebook’s IPO is expected to outstrip demand.

After the road show, Facebook will sit down with its bankers to set a price for the stock, which begins trading the following day. The IPO is expected in May.

The media attention on the Facebook IPO has been particularly bright given the company’s likely $100 billion plus valuation.

Facebook is in a “quiet period” where federal rules limit what the company can say publicly. Jonathan Thaw, a Facebook spokesman, declined to comment on the trading halt.

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