Zynga Inc., the social-gaming company that held its initial public offering in December, is planning a secondary offering of $400 million, saying it will improve the distribution of its stock.
The share sale is being underwritten by Morgan Stanley and Goldman Sachs Group Inc., as well as Bank of America Merrill Lynch, Barclays Capital, Allen & Co. and JPMorgan Chase & Co., the San Francisco-based company said in a regulatory filing today. Zynga won’t receive any proceeds from the offering.
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, three people familiar with the plan said before the filing. Zynga, which gets most of its revenue from Facebook Inc. users, is trying to avoid the fate of LinkedIn Corp., whose stock dropped after the end of its lockup 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.
“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 company focused on stock offerings.
Zynga fell 0.2 percent to $13.35 at the close in New York. The stock is up 34 percent from its $10 IPO price.
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.
“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 yesterday on “Bloomberg West.” “This is a way to offer their existing shareholders a chance to get liquidity on the stock.”
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.