The idea of this post is to explain: Why it’s being said Facebook inches closer to a Public offer after Goldman Sachs deal; in a simple and short manner.
Here are the primary reasons:
Technically, after Facebook raised $500 million from the Goldman Sachs and DST, at a private valuation of $50 billion; and more specifically after Goldman Sachs announced that it’ll create a special purpose vehicle in order to allow its clients to invest up to $1.5 billion in Facebook; both Goldman Sachs and Facebook have come under the radar of the Securities and Exchange Commission.
Simply because, Now S&E commission is sure that the number of Facebook owners (those who are holding its shares in private) has exceeded the threshold mark of 500 (The Securities Exchange Act). Another Securities Exchange Act that is also much surpassed is the $10 million ‘worth’ mark (in simple words).
Goldman Sachs’ announcement of creating a special investment vehicle to allow its clients to bring in more money at Facebook; has further pinged S&E Commission, that investment firm and Facebook are trying to circumvent its 500-person requirement; by taking advantage of a loop hole in the S&E Act.
The said Act created in 1934 sets forth certain requirements for companies to register their shares with the S.E.C. One among them is the reaching the 500 owners mark (other is $10 million of total assets and a class of equity security; in simple call it ‘worth’). But the Act, only records ‘of Record’ owners and not the beneficiary owners.
Shares can be held in two ways “of record” and “beneficially”.
The S.E.C. defines “of record” for these purposes to mean securities held “by each person who is identified as the owner of such securities on records of security holders maintained by or on behalf of the issuer.”Record ownership is thus clear. It is the shareholders who are recorded as such on the books of the company that issued the securities. But in the case of most public companies, shares for most investors are not usually held 'of record' but 'beneficially'.
In simple words, If I buy shares of a company, I will not be mentioned in S&E record as an owner, but the shares are held 'of record' by a third party, usually a broker, on behalf of I.
So if a broker has thousands of beneficiaries like me; on the S&E record, the ownership is still single, the Broker.
So all those rich people who will be buying shares through Goldman Sachs special investment vehicle; will never appear as owners in S&E books; and the owner that will be counted will be single-- the Goldman Sachs.
All these factors and circumventing attempts are the reasons why Facebook will be pressed by Securities & Exchange Commission to come clean; and the best way to effect this is to press the social networking giant to go Public.
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