Share Rules May Prompt Offering by FB

Facebook likes big numbers — it now has more than 500 million users, each one of whom can have as many as 5,000 friends. Yet as a privately held company, its ownership base must remain small, or it will have to disclose publicly its financial results.

A surging shadow market in the privately held shares of Facebook is making such restraint difficult and could spur the company to go public — even as its executives try to tamp down speculation about an initial public offering — much as similar pressure helped push Microsoft and Google toward their own initial public offerings.

The frenzied trading in Facebook, as well as in Twitter, Zynga and LinkedIn, has caught the eye of the Securities and Exchange Commission. The agency had asked for information about trading in all four companies. While it is unclear what exactly the S.E.C. is focusing on, legal experts say that one clear area of inquiry relates to a federal law that establishes a limit for private companies of fewer than 500 shareholders. Once a company has 500 shareholders, it must register its private shares with the S.E.C. and publicly disclose its financial results.

Facebook is well aware of this issue. In 2008, the S.E.C. allowed Facebook to issue restricted stock to employees without having to register the securities, a move that would have required the company to publicly disclose financial information.

The company has also tried to limit the number of employees selling shares. This year, it put into effect an insider trading policy that bars current employees from selling stock. But the pace of trading in Facebook shares, as well as trading in other social network companies, has accelerated nonetheless.

Like the Google founders and Mr. Gates before him, Facebook’s iconoclastic founder, 26-year-old Mark Zuckerberg, insists he is a reluctant seller. He and his fellow executives have sought to dispel expectations of a Facebook public offering any time soon. But as the company grows, it risks exceeding the 499 shareholder limit.

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Goldman Adopts ‘Brake’ Provision on Bonuses

Kenneth R. Feinberg, President Obama’s former pay czar, received a lukewarm reception from Wall Street this year when he suggested that firms adopt a so-called brake provision that would allow employee compensation agreements at big banks to be broken if the government were forced to step and bail them out.

Goldman Sachs disclosed in a regulatory filing that it had adopted just such a brake proposal. The filing says that if the government is forced to bail Goldman out, most of the firm’s outstanding compensation awards “shall immediately terminate.”

The move was applauded by some pay experts as a good corporate governance practice. The brake proposal followed a broad outcry over the American International Group’s payout of millions of dollars in bonuses in 2009 even though the government had pumped billions of dollars into the company to rescue it the previous year.

Still, there is no danger that Goldman’s adoption of the provision will derail its bonuses for 2010. Goldman is thriving. It earned $5.97 billion during the first nine months of the year and put aside $13.1 billion in pay for its 35,400 employees. Goldman employees are expected to find out in the third week of January what their bonuses will be and will most likely receive them in early February.

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Is Social Networking Adding Value??

Social Web darlings Facebook, Twitter and Groupon have collectively gained 70 percent in enterprise value since June — returns that make Google look like a utility stock or … Microsoft.

As of Dec. 1, institutional investors valued the trio at $49.7 billion, with Facebook weighing in at $41.2 billion, Twitter at $3.7 billion and Groupon at $4.8 billion. In essence, these private technology companies have become must-have holdings in the secondary market, where stock is purchased from current shareholders, like employees.

Nyppex, an advisory firm to sellers and buyers of private shares, tracked 11 of the largest social media companies in this report, including LinkedIn, Yelp and Zynga. Although a few lost momentum during the five-month window — notably Digg which fell 40 percent after a controversial site redesign — the vast majority were firmly in the black. Based on institutional bids, the group’s valuation gained 54.3 percent in the period.

The social-buying site Groupon, which recently rejected a $6 billion offer from Google, led the pack, up 303.4 percent. Such gains make their public counterparts look like stodgy, slow-growth stocks. Over the same five months, Apple added 25.8 percent, Google jumped 26.8 percent and Microsoft gained 13.2 percent.

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Its Bonus Season on Wall Street, Many See Zeros

Bonus season is fast approaching on Wall Street, but this year the talk does not center just on multimillion-dollar paydays. It’s about a new club that no one wants to join: the Zeros. Drawn from a broad swath of back-office employees and middle-level traders, bankers and brokers, the Zeros, as they have come to be called, are facing a once-unthinkable prospect: an annual bonus of … nothing.

In some ways, a zero bonus should not come as a surprise to many bankers. As a result of the 2008 financial crisis, Wall Street firms like Goldman Sachs and banks like Citigroup raised base pay substantially in 2009 and 2010. They were seeking to placate regulators who had argued that bonuses based on performance encouraged excessive risk.

At Goldman, for instance, the base salary for managing directors rose to $500,000 from $300,000, while at Morgan Stanley and Credit Suisse it jumped to $400,000 from $200,000.

Even though employees will receive roughly the same amount of money, the psychological blow of not getting a bonus is substantial, especially in a Wall Street culture that has long equated success and prestige with bonus size. So there are sure to be plenty of long faces on employees across the financial sector who have come to expect a bonus on top of their base pay. Wall Streeters typically find out what their bonuses will be in January, with the payout coming in February. The bump in base salaries had confused people, even though their overall compensation was the same. Actually, Wall Streeters expect a big bonus, it is as if they don’t even see their base doubled last year.

Dealing with the Zeros can be complicated. It’s actually a big headache. There is so much grousing that in some cases the banks may throw $20,000 or $25,000 at each of the Zeros so they’re not discouraged. Although this may satisfy the Wall Streeters but it may placate the fear of being a part of the ZEROs.

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Groupon-Google Update: Google Goes Hunting After Being Spurned by Groupon

After failing to win over Groupon with a $6 billion bid, Google is courting the social buying site’s rivals. Google is in talks with much smaller rivals of the two-year-old firm. In two years, Groupon, based in Chicago, has ballooned to 3,100 employees, 35 million users in 300 markets and more than $1 billion in annual revenue. In comparison, LivingSocial, the No. 2 player, has about 10 million subscribers in more than 120 markets. Although LivingSocial, which also generates significant cash, may be an attractive alternative for Google, a takeover deal would not come cheap or easy. LivingSocial raised $183 million this month from Amazon and LightSpeed Ventures, in a deal that valued the company at more than $1 billion. At the time, the company reiterated its commitment to flying solo.

Beyond LivingSocial, there are a couple of notable players in the market.

BuyWithMe, based in New York, operates in 12 cities. The company’s interim president, David Wolfe, declined to comment on possible talks but said, “Google needs to enter the coupon advertising market.” The company has raised over $20 million since it was founded in 2009.

Tippr, owned by software company Kashless, operates in 25 markets. Like Groupon, the company has recently expanded through acquisitions, buying FanForce and Chitown Deals in June.

According to analysts, Google was eager to acquire Groupon, which offers deeply discounted offers from vendors, to gain a stronghold in the fast-growing local advertising market. By connecting consumers to merchants in their hometowns, social buying sites have created a valuable way to tap into small and medium-size businesses. Local online advertising is expected to grow 18 percent, to $16.1 billion, next year, according to the advertising research firm Borrell Associates.

Read the previous story on Google-Groupon Deal @ Deal Market

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Treasury Stock Method and its Importance

In simple terms when a company repurchases shares, they may either be canceled or held for reissue. If not canceled, such shares are referred to as treasury shares. Technically, a repurchased share is a company's own share that has been bought back after having been issued and fully paid OR in another context it can also be said that a treasury stock or reacquired stock is stock which is bought back by the issuing company, reducing the amount of outstanding stock on the open market (common shares).

Stock repurchases are often used as a tax-efficient method to put cash into shareholders' hands, rather than paying dividends. Sometimes, companies do this when they feel that their stock is undervalued on the open market. Other times, companies do this to provide a "bonus" to incentive compensation plans for employees. Rather than receive cash, recipients receive an asset that might appreciate in value faster than cash saved in a bank account. Another motive for stock repurchase is to protect the company against a takeover threat.

Limitations of Treasury Stock:

·         Treasury stock does not pay a dividend

·         Treasury stock has no voting rights

·         Total treasury stock cannot exceed the maximum proportion of total capitalization specified by law in the relevant country

The possession of treasury shares does not give the company the right to vote, to exercise pre-emptive rights as a shareholder, to receive cash dividends, or to receive assets on company liquidation. Treasury shares are essentially the same as unissued capital and no one advocates classifying unissued share capital as an asset on the balance sheet, as an asset should have probable future economic benefits. Treasury shares simply reduce ordinary share capital.

Importance of the Treasury Method:

This method comes into picture when we need to deal with the reduction in earnings (EPS) of common stock that occurs through the issuance of additional shares at the exercise of stock options or warrants or the conversion of convertible securities. An investor should carefully consider the fully diluted share amount because it can cause a company’s share price to plummet significantly if a large number of option holders or convertible bond holders decide to claim their stock.

Thus method is one of the most commonly used methods to value the options/warrants for the calculation of enterprise value. The purpose of this method is to account for the cash generated by the exercise of options/ or warrants. It assumes that the proceeds that a company receives from an in-the-money (options are in the money if its exercise price is less than the share prices) option exercises are used to repurchase common shares in the market. The net new shares that are potentially created is calculated by taking the number of shares that are in-the-money options purchase, then subtracting the number of common shares that the company can purchase from the market with the option proceeds. The net new shares are added to the basic shares outstanding to get the fully diluted shares outstanding which are used to calculate the diluted equity value. An example has been illustrated for better understanding the Treasury Method concept.

Example:

Current share price:                            $50

Share outstanding:                             400mm

Options/warrants outstanding:             10mm

Exercise price:                                   $25

Proceeds from conversion:                  10*$25 = $250mm

Stock buyback (at premium):               $250/$50 = 5mm

Diluted shares:                                   400 + 10 – 5 = 405mm

Check out space for effects of convertibles on EPS……..

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Bulge Bracket Vs Boutiques

The term “Bulge Bracket” generally refers to the large investment banks that cover most or all industries and offer most or all of the various types of investment banking services.   While there is no official list of bulge bracket banks, most people would consider the following banks to be bulge bracket: Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS.

Pretty much all banks that are not considered “Bulge Bracket” are referred to as being “Boutiques”.  Boutiques, while ranging in size from a few professionals to hundreds or even thousands of professionals, can generally be categorized into three types:  (1) those that specialize in one or more products, (2) those that specialize in one or more industries and (3) those that specialize in small or mid-sized deals and small or mid-sized clients (generally less than $500 million).

There are boutiques that specialize in any number of the products that bulge bracket banks offer.  Boutiques known for M&A, for example, often compete with the bulge bracket banks for M&A transactions.  A few examples include Lazard, Greenhill, Evercore and Gleacher.  Other boutiques offer many different products but specialize in one or more industries.  Such boutiques often compete with the bulge bracket banks on the basis of their industry knowledge and expertise.  A few examples include Cowen & Co. (healthcare), Allen & Co. (media) and Thomas Weisel Partners (technology).  The third type of boutique, those that offer many products and cover many industries but compete only for “middle market” or smaller deals include Jefferies & Co., Piper Jaffray, Raymond James and Robert W. Baird.  Many of these middle market boutiques are regionally focused. Some boutiques, including several of the M&A focused banks, are considered to be as (or even more) prestigious as the bulge bracket banks.

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