Zuckerberg May Sell $1.67 Billion in Facebook Stock to Cover Options Taxes

Mark Zuckerberg may sell about $1.67 billion of Facebook Inc. stock in the company’s initial public offering to pay off taxes he will owe when he exercises options to buy 120 million shares.

The social network’s chief executive officer will owe taxes on gains related to the award of options, the Menlo Park, California-based company said this week in its IPO prospectus. The options were granted to Zuckerberg in 2005 and expire in 2015, and he’ll sell stock to cover liabilities, Facebook said.

“We expect that substantially all of the net proceeds Mr. Zuckerberg will receive upon such sale will be used to satisfy taxes that he will incur upon his exercise of an outstanding stock option to purchase 120,000,000 shares” of common stock, according to the filing.

Zuckerberg, 27, stands to become one of richest people in the world with a stake in Facebook that could be worth as much as $28.4 billion. His company, which filed on Feb. 1 to raise as much as $5 billion in an IPO, is discussing a valuation of $75 billion to $100 billion, two people familiar with the matter said last week.

At the high end of that range, assuming roughly 2.51 billion Facebook shares outstanding, each share may be worth about $39.79. The awarded shares carry an exercise price of 6 cents. Assuming Zuckerberg buys all 120 million shares at that price, his gains would total about $4.77 billion.

Zuckerberg’s tax rate will be 35 percent, said Victor Fleischer, associate professor of law at the University of Colorado. That means his bill would be about $1.67 billion.

Larry Yu, a spokesman for Facebook, declined to comment.

The social network had a valuation of at least $94 billion, or about $40 a share, in an auction of its shares on the private market earlier this week.

To contact the reporters on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net. Jesse Drucker in New York at jdrucker4@bloomberg.net Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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Mark Zuckerberg

Mike Kepka/San Francisco Chronicle/Corbis

Facebook CEO Mark Zuckerberg introduces new features for Facebook during the keynote at f8 in San Francisco.

Facebook CEO Mark Zuckerberg introduces new features for Facebook during the keynote at f8 in San Francisco. Photographer: Mike Kepka/San Francisco Chronicle/Corbis

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Feb. 2 (Bloomberg) -- Bloomberg's Jon Erlichman reports on Facebook Inc.'s filing for an initial public offering and the company's culture. Chief Executive Officer Mark Zuckerberg used the filing to outline "the hacker way," in a letter more than 2,000 words long, saying Facebook would be guided by that principle and not solely profit. Erlichman speaks on Bloomberg Television's "Bloomberg West." Bloomberg's Emily Chang also speaks. (Source: Bloomberg)

4:36

Feb. 2 (Bloomberg) -- Nick Thompson, senior editor at the New Yorker magazine and a Bloomberg Television contributing editor, talks about the outlook for Facebook Inc.'s management and its employees following the company's initial public offering. He speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

3:46

Feb. 3 (Bloomberg) -- Jon Eckhardt, a professor at the Univerity of Wisconsin, talks about Facebook Inc.'s initial public offering and the outlook for the venture-capital industry. He speaks with Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)