Facebook Underwriters to Split $176 Million in IPO Fees

Facebook Underwriters to Split About $176 Million in IPO Fees
Signage for Morgan Stanley is displayed at the company's headquarters in New York. Photographer: Victor J. Blue/Bloomberg

Facebook Inc. bankers led by Morgan Stanley will split about $176 million for managing the social-networking company’s initial public offering after accepting a lower-than-average fee for their work.

The underwriters are collecting about 1.1 percent of the $16 billion Facebook raised in its IPO yesterday, the company said in a filing today. The company hired 33 investment banks for the offering, led by Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc.

Facebook, valued at $104.2 billion in the IPO, agreed to pay less than one-third the 3.6 percent median fee on the 10 largest U.S. initial offerings in history before this one, according to data compiled by Bloomberg. With larger IPOs, banks are often willing to take a smaller percentage fee and can use high-profile offerings to help land more IPO mandates later on.

“This is just a once-in-10-years event, so they figure they’ve got to be attached to it” said Eric Jackson, founder of investment firm Ironfire Capital LLC in Naples, Florida.

Underwriters bought Facebook stock to keep it from falling below the $38 a share IPO price after its debut, people with knowledge of the matter said. The bankers supported the shares after Nasdaq OMX Group Inc. faced difficulties delivering trade execution messages, said one of the people, who asked not to be identified because the transactions are private. Jonathan Thaw, a spokesman for Facebook, declined to comment.

Facebook rose less than 1 percent as of 4 p.m. New York time to $38.23.

Morgan Stanley Bankers

The biggest share of IPO fees typically goes to the lead underwriter on the deal. Dan Simkowitz, Morgan Stanley’s chairman of global capital markets, was one of the main bankers on the offering, said a person familiar with the matter. He also helped run General Motors Co.’s 2010 IPO that raised $18.1 billion.

Michael Grimes, global co-head of technology investment banking at Morgan Stanley, also played a key role. He introduced Facebook executives to investors at a lunch meeting last week in Palo Alto, California, part of a road show to pitch the deal to prospective buyers. Grimes became acquainted with Facebook Chief Operating Officer Sheryl Sandberg when he handled the IPO for Google Inc., her former employer. He meets regularly with investors in search of the next promising startup and is an avid consumer of his clients’ products.

Sandberg recused herself from picking bankers for Facebook’s IPO because she had relationships with several banks from her previous job at Google, one person said.

CFO’s Role

Facebook Chief Financial Officer David Ebersman was the point person on the deal, starting with the selection of the lead bankers, one person said. Sandberg and Chief Executive Officer Mark Zuckerberg were involved in major decisions throughout the process, the person said.

At JPMorgan, Vice Chairman Jimmy Lee, technology bankers Jennifer Nason and Noah Wintroub, and equity capital markets bankers Liz Myers and Michael Millman worked on the offering, said one person.

The Goldman Sachs team working on the deal included technology bankers George Lee and Scott Stanford, and equity capital markets bankers David Ludwig and Andy Fisher, another person said.

Morgan Stanley handled the sale of 162.2 million, or about 39 percent, of the IPO shares, Menlo Park, California-based Facebook said in today’s filing. JPMorgan’s allocation was 84.9 million shares, or 20 percent, and Goldman Sachs got 63.2 million, or 15 percent, the filing shows.

Other banks on the IPO include Bank of America Corp., Barclays Plc, Allen & Co., Citigroup Inc., Credit Suisse Group AG, and Deutsche Bank AG.

JPMorgan Wins

JPMorgan has won the biggest share of IPOs by U.S. companies so far this year including Facebook’s sale, with 12.2 percent market share, edging out Morgan Stanley’s 12.1 percent, Bloomberg data show. Morgan Stanley topped the league table in 2011 after working on IPOs by Zynga Inc. and LinkedIn Corp., among the year’s biggest Internet debuts in the U.S.

Citigroup is in third place in U.S. IPO underwriting after Facebook’s IPO, displacing Goldman Sachs, which fell to ninth below Credit Suisse, Bank of America, Deutsche Bank, Barclays and Allen.

JPMorgan has earned an estimated $192.8 million in fees for underwriting IPOs this year including Facebook, compared with $200.4 million for Morgan Stanley and $177.8 million for Citigroup, the data show.

Goldman Sachs’s fees from working on the IPO add to the money it raised by selling part of its own stake in Facebook. The New York-based bank sold 6.18 million of its 14.2 million shares, raising $235 million at the $38 IPO price. The bank still has 8.03 million shares, worth $305 million at that price.

UBS AG, the only firm among the top 10 U.S. IPO underwriters this year that Facebook didn’t hire for the deal, currently has a 2 percent market share with estimated fees of $32.2 million.

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