The Facebook IPO: Why Facebook Subscribers Should Get a Piece of the Action

William Patalon III

Mark Zuckerberg… you need to share the wealth from the Facebook IPO.

During a Wednesday morning appearance on the FoxBusiness "Varney & Co." program, Money Morning's Shah Gilani said the Facebook Inc. founder and CEO should reserve 20% of the potential $100 billion initial public offering (IPO) for some of the company's 600 million subscribers – since they're the folks who really made Zuckerberg the king of social networking (as well one of the youngest billionaires in history).

Given that the Facebook IPO is likely to be one of the hottest ever when the company goes public next year, Gilani said that his proposal would probably be the only way the average investor could get a piece of the company at the offering price. Otherwise, retail investors who really want to own Facebook shares will be forced to buy in on the secondary market after Facebook's share price has experienced what's expected to be a stratospheric zoom. So he challenged Zuckerberg to make this pioneering move.

"Zuckerberg made history with Facebook – and now he's the king of social media and social networking – the man with the Midas touch," said Gilani, a former Wall Street insider and Money Morning commentator who operates the Capital Wave Forecast advisory service. "But now it's time for him to give some of the gold that he's earned as the head of Facebook back to the people who helped make that happen."

Added Gilani: "Facebook was Act One for him. This kind of pioneering move with the Facebook IPO could be Act Two – the encore. If social media is a force for good, this would be Zuckerberg's opportunity to once again prove he's a real social innovator."

Insights on the Facebook IPO

Gilani found a receptive audience in Varney, the popular FoxBusiness host, who labeled it "an excellent idea for getting investors into Facebook – which nobody can at the moment, unless [they] are a billionaire."

Gilani, a regular Varney guest, had been on the Tuesday show, as well – and the Facebook IPO had been the topic. But when Gilani outlined to "Varney & Co." producers his proposal to distribute shares to Facebook subscribers after his Tuesday appearance ended, Varney himself issued an invitation to return on Wednesday.

Giving Facebook subscribers access to shares at the offering price would actually be simpler than it might seem, Gilani insisted. Facebook could reserve 20% of the IPO shares for Facebook subscribers, and then dole those shares out via a lottery, Gilani said. Without such a reserve, it's a near-certainty that virtually all the Facebook IPO shares will go to wealthy investors – most of whom have connections with the decision-makers at the brokerage houses or investment banks that will receive allocations of the newly minted stock.

Gilani discussed his idea with Bill Singer, a noted New York securities attorney, and the two concluded that the lottery proposal could be put into action.

And altruism doesn't have to be the sole motivation for Zuckerberg, either. The company's most ardent subscribers are likely to be deeply loyal shareholders, too – especially those who get into the Facebook IPO via the lottery. Those folks will probably view the shares as more of a badge of honor than an investment, and will be loathe to dump them during tough times. And that will help put a floor under Facebook's stock price, Gilani insists.

"Most of these people are very likely to hold onto their shares – recognizing that they're part of the social-networking group that broke historic new ground," Gilani said. "Zuckerberg will see that it's just good business."

Facebook is the most anticipated of the current crop of Internet-related firms that are now going public – a group that includes LinkedI n Corp. (NYSE: LNKD), Groupon Inc. and others.

A key factor that will determine the timing of the IPO is a Securities and Exchange Commission (SEC) mandate that companies must start publicly disclosing key financial information once they have more than 500 investors.

Because of this rule, Facebook recently disclosed that it would likely start filing those disclosures "no later than April 30, 2012."

Gilani intends to push this idea.

"Mark Zuckerberg should stand up and say: ‘This is what social-networking is all about.' He should be the point man," Gilani said. "You're already a pioneer. How about doing this for your Second Act. You're already a billionaire, you're already one of the richest men in the world. You've already done all that. But here's a chance to really make a mark, to break new ground, and to make a statement. You claim that your real interest is in the advancement of social networking. Here's a challenge that will prove it."

News and Related Story Links:

• MarketWatch:
  Facebook IPO Seen Moving in First Quarter.
• Varney & Co.:
  Official Website.
• Facebook.com:
  Official Website.
• Money Morning:
  Official Website.
• Capital Wave Forecast:
  Official Website.

William Patalon III

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Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

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