Posted by Tom Foremski - January 17, 2011
Reuters reported that Goldman Sachs will only allow non-US investors to take part in a private placement of Facebook shares because of "intense media coverage" in the US.
Felix Salmon explains why in his column: Analysis & Opinion |
Because of the media coverage Goldman could be accused of "front running their own private market" to evade securities laws.
One question is did Goldman mismanage the deal or is it part of a plan to make sure Facebook gets a large foreign shareholder base?
Facebook would certainly benefit from not being seen as a totally US owned company. As it gains in users in nearly every country it will begin to bump into nationalistic issues. America Online, for example, quickly became AOL when it expanded globally.
And as the Internet becomes more important to every country's economy then vital services such as search, social networking, DNS, come under scrutiny and there is a trend towards local substitutes.
Russia and China are good examples of where local "me-too" Internet companies have gained over larger, longer established US brands. And this form of nationalism will be seen in many other countries -- which is why Facebook will benefit greatly if it has a fair-sized percentage of foreign ownership.
Last week in SVW, Matthew Buckland wrote about the growing foreign ownership in leading US Internet businesses by investors in China, Russia and South Africa:
Russian investment company, Digital Sky Technologies (DST), now owns about 7-10% of Facebook by various estimates, putting the company among Facebook's biggest owners. Via its sister company Mail.ru, another 2.4% of Facebook is held. Recently, according to the New York Times, DST ploughed a further $50-million into Facebook.
...There is also a Chinese, and even a South African connection to the Russian group. South African emerging markets media giant Naspers, an $18-billion company, also owns a stake (reported at 28.7%) in DST, and therefore indirectly holds a stake in Facebook.
Foreign investors will now have the chance of buying $1.5 billion of Facebook shares at a $50 billion valuation when secondary markets are already valuing Facebook at $70 billion. That seems like a no brainer.
Or will Goldman charge the current $70 billion valuation? In which case it will make an extremely good profit out of all the media coverage. Is that OK with the SEC as long as it is not US investors?!
There is a caveat emptor for foreign investors to consider: Felix Salmon points out that Goldman has the right to short Facebook.
The creation of financial investment products that can be sold and shorted by the same entity is something that turned out badly a couple of years ago. There is no way that these types of deals can avoid regulators.