
Morgan Stanley bought 63M Facebook shares ($2.3B) to create a floor around $38 - liuwei6
http://ca.reuters.com/article/businessNews/idCABRE84I01620120519
======
drags
The Wikipedia page on the "greenshoe" gives more detail on how Morgan was able
to safely buy these shares: <http://en.wikipedia.org/wiki/Greenshoe>

Brief summary: Morgan oversells the offering. Facebook gives Morgan the right
(but not the obligation) to cover its short position by buying shares at the
offering price. This is a defensive maneuver.

If the stock pops, Morgan buys the shares from Facebook at the offering price
in order to cover its short. Otherwise they'd have to purchase at the market
price (which would cause them to lose money). This is the hoped for scenario.

In the unexpected case, where the stock's price trends below the offering
price, Morgan covers its short by buying shares directly from the market
(instead of from Facebook). This stabilizes the price of the stock at the
offering price and ensures that public investors don't go underwater soon
after the offering.

It sounds like there are some complicated maneuvers that the underwriter can
pull to make some money off the greenshoe (it's not all flowers and sunshine:
[http://dealbreaker.com/2012/05/facebook-ipo-goes-nowhere-
in-...](http://dealbreaker.com/2012/05/facebook-ipo-goes-nowhere-in-exciting-
fashion/)) but this particular implementation seems relatively good to
Facebook and the public investors.

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jpdoctor
A lot of misunderstanding about the greenshoe...

It's really simple: The IPO sells X+Y shares, where X is the big IPO number of
shares and Y is the "over-allotment".

If the stock trades above the IPO price, the money from selling Y shares is
given to the IPO company along with the rest of the money from selling X
shares.

If the stock drops below the IPO price, the underwriters start buying back (up
to Y shares * IPOprice) using the money from the initial over-allotment.

It is one of the few times outright price manipulation is allowed (which
should be a completely different discussion, and likely why MS declined
comment.)

~~~
lusr
"It is one of the few times outright price manipulation is allowed (which
should be a completely different discussion"

I'm curious to know what arguments are in favour of it. If they're incorrectly
pricing the IPO, surely they should suffer for it and adjust their pricing
models and strategies rather than be allowed to manipulate their way around
what's pretty much their own mistake?

I don't know much about how companies go public but it sounds like a good
portion of the stock is issued to "investors" at or below the IPO price who
then immediately go on to sell that stock to the public when trading is
opened? So the downside of pricing the IPO too low is the company won't
receive as much for the shares as they could have. Presumably just issuing the
shares directly to the public during the IPO seems like the way to capture the
best price? Is the problem that the exchange doesn't allow for the issuing of
shares, only the trading of shares, so somebody needs to own them first? I'm
sure there's a good reason why but what is it?

~~~
gameshot911
Simply put, the argument is that the the 'price' of price manipulation is one
the market (read: the purveyors of the exchange who get to make the rules) are
willing to allow in exchange for an orderly, stable market. IPOs are hectic
times, and they want some stability while the dust settles.

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tedunangst
I love it. Stock pops after IPO, greedy bankers taking the company money.
Stock doesn't pop, overhyped failure. I wonder what a successful IPO would
look like. Price doesn't change, no trading volume?

~~~
davidw
To me it all seems like part of the same problem: some banker pulls a number
out of his ass as "the price". There should be an auction or market of some
other kind to determine the price, because... well, markets are a pretty good
mechanism for determining prices, usually much better than any one individual
or small group.

~~~
nikcub
that is what happens during the roadshow, which led to the price going up in
the last few days and more shares being issues because of demand

funny that Google tried the auction, ended up getting wall st against them and
colluding to lower the price. Facebook co-opts all the big name banks as
underwriters and gets a near-perfect opening price.

~~~
jerf
"gets a near-perfect opening price."

If Morgan-Stanley was propping the stock up, then that's strong evidence it
wasn't a near-perfect opening price, but that it was too high.

~~~
alttag
Which makes it near-perfect for Facebook (more capital from the sale), but
less-so for shareholders, particularly those looking to make a buck on a quick
flip.

------
AznHisoka
Anyone know if FB employees with shares can sell them immediately after the
IPO or do they have to wait after a certain period?

~~~
snprbob86
There is a 6 month lockup period.

~~~
maayank
3 months in this case[1]

[1] [http://www.inc.com/eric-markowitz/facebook-going-public-
inve...](http://www.inc.com/eric-markowitz/facebook-going-public-investors-
react-to-ipo.html), Ctrl+F for "90 days"

~~~
slackerIII
Gotta dump those shares before the tax code changes next year.

------
brodd
Single page:
[http://ca.reuters.com/article/businessNews/idCABRE84I0162012...](http://ca.reuters.com/article/businessNews/idCABRE84I01620120519?sp=true)

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andrewbaron
Is this another way of saying that Facebook isnt really worth $38?

~~~
zotz
They are to the underwriters that defended them at $38. : )

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russtrpkovski
From the article: "The firm did this by tapping into a 63 million share over-
allotment option, or greenshoe, according to sources familiar with the deal."

The title of your post is inaccurate. No one knows for sure how many shares MS
bought during the initial day of trading.

For a full breakdown of the first day of trading, check out Zerohedge's
analysis:

[http://www.zerohedge.com/news/facebook-complete-forensic-
pos...](http://www.zerohedge.com/news/facebook-complete-forensic-post-mortem)

~~~
lusr
Very interesting. I'd love to know how to interpret this:
[http://www.zerohedge.com/sites/default/files/images/user5/im...](http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/05/FB%205.gif)

~~~
russtrpkovski
[http://www.nanex.net/aqck/QTSChartExplain/QTSequencer_Basic....](http://www.nanex.net/aqck/QTSChartExplain/QTSequencer_Basic.html)

------
jakozaur
To be honest. I am not that worried if some investment bank got a problem,
because Facebook manages to get so much money from the IPO. At least this
time, the company which creates true value wins. Unfortunately, in most cases
company in first day of trading price rise significantly so it potentially
raised less then it was possible.

------
maybird
I'm confused by this "greenshoe" business.

To prevent the price of something from falling, you can:

(1) Increase its demand.

(2) Decrease its supply.

Which one does the "greenshoe" do?

~~~
brendino
The greenshoe increases the demand. MS placed a 38.00 bid with an enormous
size, so if you were to look at the live feed, you would have seen something
like: Bid: 38.00 x 9999999 Ask: 38.01 x 1234

~~~
joering2
I feel like its worth adding, for those who don't trade. If the stocks goes
down, you are looking for short/long terms supports it may [temporarily] stop
on. Those are usually backed up by either history of the stock (recent
supports) or psychological barriers (like a round number). In situation of a
stock with couple hours of history those will be psychological like number 38.
Then a trader looks how much support there is on certain level. In this
example there were about $300MM (IIRC) worth of stock somebody asked to buy.
So if you ready to sell because there is a panic and stock does not want to go
up, you see so much cheddar [of support at $38] that someone is willing to buy
that you tell yourself: "there is no chance someone will sell so much stock,
so it won't go lower". So you don't sell at this point of time. Less people
want to sell, more demand for the stock. Stock then stops or goes up, BUT at
least the fall was indefinitely defended.

But again, depends what decisions big fish will do over this weekend, Monday
morning you may see shit on $38, or if they offer plenty for sell at any
price, you may see a gap down like start trading at $36.

Hope this helps.

------
ajaymatrix
Did the investors get the valuation correct? Is it really a $100 B company ?.
I am reading through the prospectus now.
[http://www.sec.gov/Archives/edgar/data/1326801/0001193125120...](http://www.sec.gov/Archives/edgar/data/1326801/000119312512034517/d287954ds1.htm)

------
rondon1
I suspect they will keep this up next week. They will also work out a deal
with facebook for facebook to buyback lots of the shares that Morgan Stanley
is buying. That way the stock price can go up while the market cap is going
down.

------
arnoldwh
We know it was MS that's supporting them at that psychologically important $38
figure, but that $2.3B figure is just speculation. Still, I'm sure there are
some very nervous traders this weekend over at MS. Would not be surprised to
see a lot of shorts on stocks like Yelp, Zynga as a hedge.

What a disaster this IPO was (for the banks, not for facebook). Though, I'm
sure the people at Facebook aren't exactly happy with the way things went and
all the (unfair?) negative press / scrutiny that they will receive now.

~~~
redthrowaway
I honestly can't see them caring a whole lot. Scrutiny and bad press can only
impact your stock prices in the short term; in the long run they'll revert to
the mean. If Zuck and co. feel like facebook is a fundamentally strong bet,
then they'll be inclined to ignore fluctuations in the price and look to the
long term a la Amazon.

Also, Zuck owns 57% of the voting shares, so it's not like he _really_ gives a
damn what the traders think.

~~~
joering2
Ok and this is what I don't get. Usually companies that are traded publicly
have responsibilities toward stockholders to do anything in the power
(reasonably) for the stock to be going up. That the simplicity of a stock
market - no investor is willing to lock its money knowing a company is not
willing to grow.

Now, if you have one guy (that to average person is called a "hacker in the
hoodie"), how do you trust a stock? What if there is some terrible decision he
is about to make and the board can do shit to stop him because he has the
majority of vote.

Basically, fatum of all stockholders money in this stock lays within one
single guy and his 57% of vote. Can you imagine, hypothetically what would
happen if tomorrow Mr. Zuckerberg is hit by the bus? ? Yes, I am sure they
have backup plan for the backup plan in situations like that, but cant you
imagine what kind of signal would that send to media? The stock would dive
like a scubadiver on a deep-dive mission!

~~~
netrus
The bus factor is priced in, as is the assumption that Facebook will
dramatically increase its revenue in the long run. If Facebook would not grow
anymore, the stock would instantly collapse.

~~~
joering2
netrus, I don't think it works like that. You just described a crystal ball.
You sure they know everything that is in this stock? Would there be a justify
reason behind something called "Stock exchange" if everyone would know
everything in the future?

And what do you mean by instantly? Like the first day or first year, or what?
because as far as I remember everywhere I talked with bankers, everyone from
teen that just turned 18 to a 95 years old grandpa withdrawing last savings
were going to buy Facebook stock. But this is not what Friday has showed to
us. 2 things; either: a) entire world change its mind overnight (I spoke with
banker as late as last Thursday), or b) there was so much selling happening,
that if the world was buying, it wasn't just enough to build demand and push
the stock up. I go with gate #2, considering how much underwriters were
willing to buildup on $38. A $300,000,000 worth dam!! I guarantee you, plenty
of big fish is shitting in pants right now. To many of them this weekend,
before Monday opening, is not a chilling out and relaxing time. I think by
next Friday you will see some spectacular action on this stock.

Further, I think that Zynga, Groupon, Zillow, Linkedin, ZipCar, Pandora and
others -- they are all assuming dramatically increase in revenue. But yet they
are all below (some significant like Groupon or Zynga) their IPO price.

------
tzz
Market Place has more info about Morgan Stanley, the underwriter, supporting
the Facebook stock: [http://www.marketplace.org/topics/business/weekly-wrap-
what-...](http://www.marketplace.org/topics/business/weekly-wrap-what-
happened-facebooks-stock)

------
Kroem3r
A well written article; interesting enough in spite of not having any quotable
sources. A more accurate title might have been "Reuters shut-out; Facebook IPO
bankers remain mum"

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akavi
I wonder who the counterparties were.

I'd be willing to bet there're some very happy algorithmic traders out there
right now.

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mcantelon
I guess the "trading glitches" were not in place for Morgan Stanley's buy
orders.

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nzealand
As I said a month ago.

May 17 is a terrible time to IPO. Facebook will be fighting against a falling
stock market. Operation twist is about to end, and there are a lot of
believers in "Sell in May and go away."

~~~
chucknelson
I've heard there are also a lot of believers in "Buy in May, Hip Hip Hooray!".
I think both of our believer sayings have about the same amount of
credibility...

~~~
nzealand
Sell in may is one of the few statistically proven effects that continues to
this day.

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bewareofdog
Insiders were selling their Facebook shares pre-IPO.

