Facebook Inc. has chosen its underwriters. Now it needs to pick a place to trade.
NYSE Euronext and Nasdaq OMX Group Inc., rivals for almost every initial public offering in America, are competing now for what may be the biggest ever by a technology company. Winning it means more fees, a boost in trading and the chance to link their brand with the largest social networking site in the world. No decision on where the shares will list has been announced, according to the company’s filing today.
For Robert Greifeld, chief executive officer at Nasdaq OMX, reputation is at stake after his market became synonymous with computer and Internet companies through offerings by Google Inc., Apple Inc. and Microsoft Corp. NYSE’s Duncan Niederauer is trying to salvage a year in which his stock lost 30 percent and European regulators recommended blocking the $7.3 billion merger with Deutsche Boerse AG.
“It should be the IPO of the year,” said Lawrence Creatura, a Rochester, New York-based money manager at Federated Investors Inc., which oversees $350 billion. “This is a marquee name in a world where those are scarce. We’re not creating a lot of Facebooks these days so it would be extraordinarily valuable for an exchange.”
Richard Adamonis, a spokesman for NYSE Euronext, and Frank De Maria, of Nasdaq OMX, declined to comment on the listing. Jonathan Thaw, a spokesman for Facebook, declined to comment.
Facebook filed to raise $5 billion today. The amount is a placeholder used to calculate fees and may change. The Menlo Park, California-based company hired Morgan Stanley, JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Barclays Plc and Allen & Co. to manage the IPO.
Should it increase, Facebook’s IPO could be the biggest ever by an Internet or technology company, data compiled by Bloomberg show. The debut of Infineon Technologies AG for $5.85 billion in 2000 is the largest to date.
NYSE and Nasdaq are trying to lure Facebook by promising they will do the most to raise its profile, according to William Hambrecht, chairman and founder of San Francisco-based investment bank WR Hambrecht & Co. and a four-decade veteran of public offerings by Silicon Valley companies.
“It usually comes down to who’s willing to put the most promotional money out,” Hambrecht said in a phone interview. “You pay for advertising and that type of thing. There’s always a lot of advertising around the offering and listing and that’s about the only way they compete from a cash point of view. They both do it.”
The New York Stock Exchange made inroads into Nasdaq Stock Market’s technology dominance last year by capturing LinkedIn Corp. and Pandora Media Inc. Convincing Facebook would help focus investors after a year in which NYSE Euronext’s market value fell from about $10 billion to $7 billion, said Creatura.
European regulators today vetoed NYSE Euronext’s plan to merge with Deutsche Boerse after concluding that it would hurt competition. The deal would have put 90 percent of Europe’s exchange-traded derivatives in the hands of one company.
NYSE Euronext shares tumbled 21 percent since Feb. 8, 2011, the day before the companies said they were in talks, through yesterday. The stock lost 0.5 percent to $26.43 today. Nasdaq OMX advanced less than 0.1 percent to $24.77 after retreating 4.2 percent since NYSE and Deutsche Boerse announced their discussions.
“They could use a ray of sunshine,” Creatura said. “It would be therapeutic to have a fresh chapter to help get back on track strategically after the merger situation.”
NYSE Euronext won 56 percent of U.S. initial offerings in 2011 and has claimed more than half every year since 2008, according to Ipreo Holdings LLC, which provides markets data and analytics. The company accounted for 74 percent of IPO proceeds each year on average since 2001, according to the data.
Co-founded by Mark Zuckerberg in 2004 in a Harvard University dorm room, Facebook has amassed more than 800 million users with a website that lets anyone with an Internet connection construct profile pages, post video and photos and interact with friends.
Hiring former Google and McKinsey & Co. executive Sheryl Sandberg in 2008 was a bid by Facebook CEO Zuckerberg to convey an image of maturity, said Sam Hamadeh, CEO of New York-based PrivCo LLC, a New York-based provider of financial data for closely held companies. An NYSE listing could be another.
“It’s going to be at the Big Board,” Hamadeh said in a phone interview. “They want to position themselves as a blue-chip name.”
More to Lose
Nasdaq OMX has more at stake because of the perception it gets all the technology companies, said Jamie Selway, head of liquidity management at New York-based Investment Technology Group Inc. Zynga Inc., the online-game developer, and Groupon Inc., the daily-deal site, listed shares on Nasdaq last year.
“The Intels, Microsofts and Apples all IPO’d on Nasdaq and stayed with Nasdaq,” Selway said in a telephone interview. “By those lights, Facebook going to NYSE versus Nasdaq would be a hit,” he said. “Because of the expectation that Nasdaq would get Facebook, maybe Nasdaq has got more to lose.”
Today’s filing didn’t answer the question of who gets the listing. Groupon, LinkedIn, Pandora and Zynga all left the name of the primary exchange out of initial documents. When Google went public in 2004, it didn’t disclose the name, either.
NYSE Euronext charges more for companies to list, with an initial fee of $125,000 to $250,000 and annual payments from $38,000 to $500,000. About 80 percent of NYSE companies paid $199,000 or less annually, Adamonis said. Nasdaq OMX’s initial listing fee for IPOs ranges from $35,000 to $99,500 for its highest tier of companies, and its annual fee is $35,000 to $99,500.
While listings bring in less than a quarter of net revenue and even less of profit for NYSE Euronext and Nasdaq OMX, the exchanges fight to bring in IPOs because it leads to more trading and brand value, according to Larry Tabb, founder of financial-market research and advisory firm Tabb Group LLC. Listings accounted for 16 percent of NYSE Euronext’s net revenue in the third quarter and 22 percent of Nasdaq OMX’s.
“Trading volume increases either way,” Tabb said. “The other thing is how much will Nasdaq or New York benefit from a halo effect of the other IPOs.”
Tabb said Facebook’s trading may translate into about $500,000 to $1 million in trading revenue per year, split among the exchanges and other trading venues. That means that whether Facebook lists with NYSE Euronext or not, the exchange could get an additional $260,000 in trading and market data revenue alone.
NYSE Euronext traded 34 percent of its listed companies in December, and Nasdaq OMX’s three exchanges traded 16 percent of those stocks, according to data from Barclays. NYSE Arca accounted for 12 percent of Nasdaq-listed companies, and Nasdaq OMX had 31 percent, the data show.
“Facebook’s going to come out of the gate as almost a Dow industrial sized-stock,” Tabb said in a Jan. 30 phone interview. “This is not your crazy cousin’s startup. Each of the different organizations has a different set of perks and services that they offer their listing organizations, but increasingly it becomes one around brand. Do you want to brand with Nasdaq, or NYSE?”