

Facebook Splits Stock, 5 to 1 - sportsTAKES
http://online.wsj.com/article/SB10001424052748703859204575526161933614240.html?mod=WSJ_hps_SECONDTopStories

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ghshephard
So, the following comment was made: "Part of the reason for Friday's split,
said Facebook spokesman Jonny Thaw, was to help reduce the price of Facebook's
shares, which have risen significantly in recent years."

Now, a reasonable argument can be made that once shares start to be worth more
than $10,000 - and certainly in the case of outliers like BRK-A (currently at
$124,015/share), there is an argument for a split (or, in the case of BRK, a
tracking stock - BRK-B) - simply to prevent the creation of pools that allow
people who don't want to buy $10,000 in a single stock to participate. (I
think that's why Warren had BRK-B created)

But, facebook is trading in the secondary markets (sharespost) at $72. Even
assuming they double in value, that would suggest a price that anyone who
wanted to purchase, could do so.

So, clearly, there is another reason as to why this stock is being split - and
I don't put much merit in the "When a stock is split, it shows an increase in
value" - I have far too much faith in the efficient market to put much belief
in that nonsense.

My theory, is that there are other, secondary benefits from splitting a stock.
My two guesses are:

o Bankers get to book a bunch of revenue from splitting the stock and the
paperwork that goes with it, so they sell mgmt on the idea.

o Some legal advantage to splitting shares, and possibly doing an inventory of
all the stock certificates outstanding, getting an audit of the shareholders,
etc...

Is there anybody that has been on the decision making team for a stock split
that would like to weigh in on this one?

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gte910h
Couldn't they just be trying to keep the share price down in the ultra
affordable range, so people will gamble with it upon IPO?

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ghshephard
That's the "Market Cap will be higher if Stock Price is smaller" theory that
I'm not a huge fan of.

If it were true, then there would be a _great_ arbitrage opportunity for
efficient market practitioners who were instead focused on ROE/ROI/Cashflow
principals of stocks that had excessive value because they had been "split."

In the short term, market is a voting mechanism, long term it's a weighing
device. The major challenge is trying to differentiate between the two - but
Market Splits would seem to be custom designed to be 100% voting bias.

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yummyfajitas
It's not an arbitrage opportunity, it's selling liquidity. The risk is that
you might be unable to sell the high-price stock when you want to.

The premium for liquidity is real and important. Compare charts for Chipotle
and Chipotle-B (CMG.B = CMG + 10x voting rights) - until the end of last year,
CMG traded at a significant premium over CMG.B.

[http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...](http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=0&chvs=Logarithmic&chdeh=0&chfdeh=0&chdet=1232744400000&chddm=209732&chls=IntervalBasedLine&cmpto=NYSE:CMG.B&cmptdms=0&q=NYSE:CMG&ntsp=0)

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ghshephard
Agreed - but I don't know if there is any evidence to suggest that $72 vs
$14.40/share will have any significant liquidity impact on buyers and sellers.
$72 is hardly a "high-price" stock.

I think the poster who suggested that being able to lure employees in with 5x
the number of options had it right. After the split, an employee who would
have been granted 3,000 options, will now get 15,000 options.

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asmithmd1
Reminds me of my local pizza shop: "If you are extra hungry we will gladly
slice your pizza into 16 pieces instead of 8"

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bretthellman
500 shares sounds a lot better than 100... important for hiring top talent...
What's really fascinating is the secondary market. Sharespost must be loving
this.

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austinalter
Would "top talent" really be that bad at simple math?

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wooster
Yes. You'd be surprised at how many people can tell you the number of options
they have, but not the percent of the company/equity/employee pool those
options represent.

