March 5 (Bloomberg) -- Mark Zuckerberg’s shares of Facebook Inc. may be worth less than $21 billion when the company completes its initial public offering in the months ahead.
Facebook intends to issue more than 500 million shares of its Class B common stock at the offering through the exercise of stock options and grants of restricted stock, according to its IPO prospectus. Those shares aren’t included in the total share count in the filing, so the numbers used to calculate Zuckerberg’s 28.4 percent ownership are incomplete.
“The percentage in the prospectus can be very misleading,” said Sam Hamadeh, head of New York-based PrivCo, a research firm that specializes in private companies’ financial data. “It’s giving him credit for shares that he doesn’t actually own yet.”
At the time of the offering, Zuckerberg is likely to sell about $1.75 billion of Facebook stock to pay off the tax obligation he will incur when he exercises options to buy 120 million shares. The combined transactions will dilute Zuckerberg’s stake from 28.4 percent to about 21 percent. If the company maintains its projected $100 billion valuation, that would make Zuckerberg worth about $21 billion, less than the $28.4 billion implied by his stated ownership.
At that net worth, Zuckerberg isn’t rich enough to qualify for the Bloomberg Billionaires Index, a new daily ranking of the world’s 20 richest people. The 20th spot is currently occupied by L’Oreal heiress Liliane Bettencourt.
Jonathan Thaw, a spokesman at Facebook, declined to comment in an e-mail.
According to the prospectus filed last month, Facebook intends to issue 138.5 million shares of Class B stock upon exercise of options from the company’s 2005 stock plan. Those shares have a weighted-average exercise price of approximately 83 cents.
The Menlo Park, California-based company also will issue 380.7 million shares of restricted stock. Added together with the company’s 1.88 billion outstanding shares of Class A and Class B common stock, Facebook will have just less than 2.4 billion shares outstanding after the offering. At a $100 billion valuation, each share would be worth about $41.75.
Zuckerberg’s stock options carry an exercise price of 6 cents. Assuming he buys all 120 million shares at that price, his gains would total about $5 billion. At a 35 percent tax rate, the social network’s founder and chief executive officer would owe $1.75 billion in taxes. Zuckerberg would need to sell about 42 million shares to cover the bill, bringing his total holdings to 491.8 million shares.
Multiply that by the likely offering price and “it doesn’t get you anywhere close to $28 billion,” said Hamadeh.
To be sure, there is a strong possibility that Facebook shares will soar on the first day of trading. For every dollar the stock gains, Zuckerberg will increase his fortune by half a billion dollars. If the stock jumps 35 percent, Zuckerberg’s stake would be worth $28 billion.
Facebook’s implied market value stood at about $101.4 billion, based on a transaction last week via secondary exchange SharesPost Inc.
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