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Zynga Is Said to Plan New Offering to Avoid Lockup Selloff

(Corrects spelling of Menlow’s name in fourth paragraph of story published March 13.)

Zynga Inc. (ZNGA), the social-gaming company that held its initial public offering in December, is planning an additional offering of shares, three people familiar with the matter said.

The move is designed to let investors sell some stock while getting large shareholders to agree to a longer “lockup” period that keeps them from unloading shares, said the people, who asked not to be named because the plan is private. Zynga (ZNGA) isn’t issuing new stock in the offering, two of the people said.

The San Francisco-based company is trying to avoid the fate of LinkedIn Corp. (LNKD), which saw its stock drop following the expiration of its lockup period in November, said two of the people. Company insiders are typically forbidden from unloading shares for six months after an IPO, in part to keep sell orders from flooding the market. Zynga’s new offering will be held before its lockup ends in June, said two of the people.

“They may be fearful of what’s going to happen in June,” said David Menlow, president of Green Brook, New Jersey-based IPOfinancial.com, a research firm focused on stock offerings.

In a secondary offering, venture-capital backers and other shorter-term investors typically sell stock to long-term shareholders such as investment banks -- on the condition they agree to a longer lockup, said Carter Mack, president of San Francisco-based investment bank JMP Group Inc.

Photographer: Jeff Chiu/AP

Zynga CEO Mark Pincus in San Francisco. Close

Zynga CEO Mark Pincus in San Francisco.

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Photographer: Jeff Chiu/AP

Zynga CEO Mark Pincus in San Francisco.

Getting Paid

“Zynga probably does not need to raise any additional capital,” Mack, whose firm doesn’t have a relationship with Zynga, said in a televised interview on “Bloomberg West.” “This is a way to offer their existing shareholders a chance to get liquidity on the stock.”

Dani Dudeck, a spokeswoman for Zynga, said the company doesn’t comment on rumors or speculation.

When it went public, Zynga sold about 14 percent of shares. While that’s a lower amount than in the typical IPO, other Internet companies offered an even smaller portion in their stock debuts last year. The amount of shares floated in the IPOs of LinkedIn, Groupon Inc. and Pandora Media Inc. were all below 10 percent, a strategy that helps protect the value of existing investors’ stakes.

Dunkin’ Brands Group Inc. (DNKN), which began trading in July, also held an additional offering for some of its shareholders. Michael Kors Holdings Ltd., the luxury-goods maker which held a December IPO, filed for a secondary offering last week.

“It’s the right thing to do to allow some of the insiders to have a liquidity event, hopefully without disrupting the market,” said Arvind Bhatia, an analyst at Sterne, Agee & Leach Inc. in Dallas. He has an underperform rating on shares of Zynga, which he doesn’t own.

Zynga gets most of its revenue from users of Facebook Inc. (FB), which is planning its own IPO. That company, the world’s largest social-networking service, filed last month to raise $5 billion in its offering.

Zynga fell 2.8 percent to $13.38 at the close in New York. The shares have climbed 42 percent this year.

To contact the reporters on this story: Jon Erlichman in New York at jerlichman1@bloomberg.net; Douglas MacMillan in New York at dmacmillan3@bloomberg.net

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

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