Facebook Inc. (FB), the social- networking website seeking to raise $5 billion in an initial public offering, will pay underwriters a 1.1 percent fee, said two people with knowledge of the company’s plans.
The fee will be shared among Facebook’s underwriters, said the people, who asked not to be named because the details are private. Facebook has hired 31 banks to work on the IPO, including Morgan Stanley as lead underwriter. The lead bank typically earns a bigger cut of the total.
The world’s most popular social network is paying less than half the 2.5 percent median fee on the largest U.S. offerings in history, according to data compiled by Bloomberg. At $5 billion, the IPO would be the biggest on record for an Internet company and may value Facebook (FB) at $75 billion to $100 billion, people familiar with the situation have said.
“Facebook has enormous leverage,” said Dan Veru, who oversees $3.6 billion as chief investment officer at Palisade Capital Management LLC in Fort Lee, New Jersey. “Being an underwriter of an IPO that has so much visibility is like advertising to other companies that are considering using an investment banker. It’s like putting your name in neon lights.”
Facebook is paying about one-fifth the typical rate for IPOs, with underwriters receiving an average of 5.48 percent in 127 offerings last year, Bloomberg data show. With larger IPOs, banks can often afford to take a smaller percentage fee, and high-profile offerings such as Facebook can lead to future business, making securities firms willing to accept less.
Among U.S. IPOs larger than $5 billion, only General Motors Co. has paid a lower fee than Facebook on a percentage basis. The automaker’s $18.1 billion U.S. government-led IPO in 2010 paid bankers a fee of 0.75 percent. Visa Inc.’s $19.7 billion IPO, the largest in history, included a 2.8 percent fee for underwriters, Bloomberg data show.
At a fee rate of 1.1 percent, a $5 billion offering would generate $55 million for Facebook’s banks. Jonathan Thaw, a spokesman for Facebook, declined to comment.
The banks Facebook named last month to handle the deal included Morgan Stanley, JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Barclays Plc and Allen & Co. This month, Facebook expanded the list to include Deutsche Bank AG, Credit Suisse Group AG and Citigroup Inc. Smaller banks were added as well, such as M.R. Beal & Co., Muriel Siebert & Co. and William Blair & Co.
Banks including Morgan Stanley, JPMorgan, Goldman Sachs, Bank of America and Barclays also arranged an $8 billion financing package for Facebook, the company said in a filing earlier this month.
The role Mark Zuckerberg will play in marketing the offering hasn’t been determined, said a person with knowledge of the matter. Executives told attendees to keep their expectations for his role low, said the person, who asked not be identified as the matter is private. The company’s 27-year-old co-founder and chief executive officer didn’t attend a meeting yesterday that served as a precursor to the IPO’s so-called roadshow, this person said.
That left Sheryl Sandberg, Facebook’s operating chief, and David Ebersman, the chief financial officer, to answer questions from analysts and bankers. The company, which held the event at its headquarters in Menlo Park, California, will probably have another meeting with analysts next month, the person said.
The company also hasn’t decided yet whether it will offer financial guidance to analysts, according to the person. At the event, executives emphasized that the company is focused on the long term and well positioned for growth, the person said.
The Wall Street Journal previously reported on Zuckerberg missing the analyst meeting. Executives at the event said he would be focused more on developing Facebook’s service, the Journal reported.