Pre-IPO Facebook investors can sell $6-billion worth shares

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The pre-IPO shareholders of Facebook will be able to sell up to 268 million shares, worth an estimated USD six billion, next week as a lock-in period for sale of these shares would come to an end.

These shareholders include some directors and various employees of the social networking giant, but excludes founder and CEO Mark Zuckerberg.

The shares of the social networking firm have been under pressure ever since the company got listed in May this year and the end of first lock-in period for those holding the shares prior to the IPO on August 16 would offer such shareowners to monetise their holdings.

When a company hit the market its insiders or those holding majority stakes are forbidden to sell any of their shares and an IPO lock-up is usually done so that the market is not flooded with too much supply of a company's stock too quickly.

Once the lock-up period ends, most trading restrictions are removed. Facebook has shed nearly half of its market value since its highly touted public offering in May and contrary to widespread expectations, its stock market debut has not been up to all the hype so far.

Within three months of making an entry into the secondary market, the stock value of the company has collapsed by 42 per cent to USD 22 apiece on Friday from USD 38 at its debut on May 18.

As Facebook's stock price has declined, so has its market capitalisation. The company's current market valuation is about USD 47 billion. However, when the company went public, its market value was about USD 104 billion.

Facebook's public issue put 421 million shares into the open market, but there are still 1.9 billion more shares owned by Facebook early investors, employees and directors. That is five-times of what we witnessed in May, and all these shares are potentially for sale.

In a regulatory filing, Facebook has said all the lock-up periods would expire by next year and over that period more than 1.9 billion shares would be unlocked.

Another 247 million scrips would be available for trade between between mid-October and mid-November and the bulk of shares may flood the market on November 13, when 1.3 billion become available.

And after these investors could be hit with capital gain taxes on January 1, in case they don't sell their shares this year, another 124 million would be available on December 13.

Market experts are divided over the expiration of Facebook's post-IPO share lock-ups as many of them believes that expected flooding could further lowers its price.

However, some bullish analysts are of the view that this would give a buying opportunity for investors to get into the stock.