Morgan Stanley Facebook Role May Cement IPO Lead for Third Year Running

Morgan Stanley (MS) may cement its status as the top underwriter for U.S. initial public offerings for a third year running with its lead role on Facebook Inc. (FB)’s planned $5 billion sale.

Getting picked for the IPO, which Facebook disclosed in a regulatory filing yesterday, is a coup for Morgan Stanley and Michael Grimes, 45, a banker at the firm since 1995 who has longstanding ties to Facebook Chief Operating Officer Sheryl Sandberg, 42.

Grimes, the global co-head of the bank’s technology investment banking unit, and his Morgan Stanley colleagues won the biggest share of business underwriting U.S. IPOs by Internet companies last year, helping propel them to the top ranking in all U.S. IPOs, according to data compiled by Bloomberg. Facebook’s sale would be the biggest Internet IPO on record.

“This means a huge windfall for them,” said Jack Ablin, who helps oversee $55 billion as chief investment officer for Chicago-based Harris Private Bank. “The fact that they have led so many high-profile social media deals in the last year is proof positive that Morgan Stanley is most likely to be able to get this deal done.”

Morgan Stanley worked on IPOs by Zynga Inc. (ZNGA) and LinkedIn Corp. (LNKD), among the biggest Internet debuts in the U.S. last year, helped by Grimes’s connections with venture capital firms. Grimes, a Los Angeles native, meets regularly with investors in search of promising startups, has close ties to firms such as Sequoia Capital and is an early adopter of his clients’ products.

Networking

Grimes met Sandberg in 2001, at a party in Silicon Valley where she was job hunting after having worked at the U.S. Treasury Department during the Clinton administration, according to a 2008 interview with Grimes. Sandberg at that same party also met Eric Schmidt, then chief executive officer of Google Inc. (GOOG), who subsequently hired her, according to Grimes.

Morgan Stanley led Google’s 2004 IPO, by which time Sandberg was a senior executive there. Grimes, an early user of Facebook, has described Sandberg as a consummate networker and a decisive leader who is highly persuasive.

Facebook Chief Executive Officer Mark Zuckerberg, 27, hired Sandberg in 2008 from Google to gain expertise in online advertising sales. Sandberg received $30.9 million in total compensation in 2011, making her the best-paid senior executive at Facebook, according to the filing, while Zuckerberg received $1.49 million. Sandberg isn’t on Facebook’s board.

Erskine Bowles

Another Morgan Stanley connection is Erskine Bowles, who sits on the bank’s board and joined Facebook’s board in September as the social-networking website prepared for its IPO. Bowles started his career in corporate finance at Morgan Stanley, according to Facebook’s prospectus, and is president emeritus of the University of North Carolina, where he served from 2006 to 2010. Bowles’s professional experience includes founding venture capital firm Kitty Hawk Capital and serving as White House chief of staff from 1996 to 1998.

JPMorgan Chase & Co., Goldman Sachs Group Inc. (GS), Bank of America Corp., Barclays Plc (BARC) and Allen & Co. also will help with the IPO, Facebook said in the filing. Morgan Stanley, listed first in the filing, stands to earn a larger share of the fees collected by securities firms for arranging the share sale. Facebook has a $2.5 billion revolving credit facility with affiliates of Morgan Stanley, JPMorgan, Goldman Sachs, Bank of America and Barclays, the filing shows.

JPMorgan Relationship

JPMorgan’s CEO, Jamie Dimon, has a long-time friendship with Sandberg and spoke with her about the IPO at various times, two people familiar with the matter said. That relationship helped JPMorgan edge out Goldman for a top spot in the IPO, they said. Morgan Stanley and JPMorgan found out last week they would be the lead names on the filing, said one of the people.

A spokeswoman for JPMorgan and Jonathan Thaw, a spokesman for Facebook, declined to comment.

Goldman Sachs, whose equity capital markets revenue slid to No. 4 among U.S. rivals in 2011, failed to win the lead role in Facebook Inc.’s initial public offering after scuttling a private sale of the Internet company’s stock to U.S. investors.

The banks handling Facebook’s IPO may collect fees of as little as 1 percent to 1.5 percent of the total amount raised in the sale, said two people with knowledge of the matter. Facebook hasn’t set a final fee, said the people.

With such a large IPO, banks can often afford to take a smaller percentage fee, and a high-profile offering can lead to future business. At 1 percent, Facebook would be paying one- fifth the average rate banks collected for managing the biggest U.S. Internet IPOs last year. Those IPOs, by Yandex NV, Zynga, Renren Inc. (RENN) and Groupon Inc., raised only a fraction of the $5 billion that Facebook is seeking.

Record Size

The amount of Facebook’s offering may change. The company had been discussing raising as much as $10 billion, a person with knowledge of the matter said late last year. At that size, Facebook’s IPO would be the biggest ever by an Internet or technology company, data compiled by Bloomberg show, trumping the combined U.S. and German debut from Infineon Technologies AG (IFX) totaling about $5.85 billion in 2000.

On underwriting league tables, Morgan Stanley took 20 percent market share for IPOs by Internet companies on U.S. exchanges in 2011, according to data compiled by Bloomberg. Morgan Stanley also led all U.S. IPOs last year with a 13 percent share, selling an estimated $4.6 billion of shares and generating an estimated $262 million in fees, the data show.

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net; Lee Spears in New York at lspears3@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net.

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net

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