Goldman Sachs Group Inc. (NYSE: GS) is being viewed differently because of its Facebook investment that gave the social networking monster a valuation of about $50 billion. In order to not throw Facebook into the same regulations of public companies (and to keep scrutiny from itself), Goldman Sachs is now making that investment vehicle available only to non-U.S. clients.
If a company has more than 500 shareholders whether a stock is publicly traded or not, it has to provide public financial data. That would imply that Facebook would have most of the same burdens of a public company without the benefits of the ease of access to capital in the financial markets.
This is part of the same argument that we have used in our predictions for the Top 17 IPOs of 2011. Mark Zuckerberg has gone on the record saying that he does not want to take the company through an IPO yet. The consensus is that 2012 will be the year of the IPO. The Goldman Sachs investment may have taken that decision away from Zuckerberg.
Second Market currently lists that some 25,000 shares of Facebook are for sale under a sealed bid ending on January 24, 2011. Under the current regulations there is nothing unlawful nor immoral about that. Still, it is easy to argue that Facebook is actually already almost a public company. Shares have sold privately on the third market before.
The intent here from Goldman Sachs was to have an investment vehicle for its private wealth clients, thus skirting around the red tape by being only counted as one holder. The problem is that the SEC has already been requesting information from Facebook before Goldman Sachs even got involved.
The long and short of the lesson is that Facebook is coming public sooner than it wants to. Companies can try to keep the lid on growth without having to reveal all of their cookies in the cookie jar if they are structured properly. The problem is that the existing structure does not allow all the flexibility that Zuckerberg needs to keep his company private.
Our guess under today’s circumstances is that Mark Zuckerberg will have to file to bring Facebook public this year rather than next. Let’s just hope that Zuckerberg doesn’t get to cheeky and try to bring Facebook public via a reverse merger. That is not expected, but it might make for a very odd end of a very long saga.
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JON C. OGG