FACEBOOK, THE social networking website seeking to raise $5 billion in an initial public offering (IPO), will pay underwriters a 1.1 per cent fee, said two people with knowledge of the company’s plans.
The fee will be shared among Facebook’s underwriters, said the pair, who asked not to be named because 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 per cent median fee on the largest US 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 at $75 billion to $100 billion.
“Facebook has enormous leverage,” said Dan Veru, who oversees $3.6 billion as chief investment officer at Palisade Capital Management.
“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 per cent 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 US IPOs larger than $5 billion, only General Motors has paid a lower fee than Facebook on a percentage basis.
The car-maker’s $18.1 billion US government-led IPO in 2010 paid bankers a fee of 0.75 per cent.
Visa’s $19.7 billion IPO, the largest in history, included a 2.8 per cent fee for underwriters.
At a fee of 1.1 per cent, a $5 billion offering would generate $55 million for Facebook’s banks.
The banks Facebook named last month to handle the deal included Morgan Stanley, JPMorgan Chase, Goldman Sachs, Bank of America, Barclays and Allen and Co. This month it expanded this to include Deutsche Bank, Credit Suisse and Citigroup. – (Bloomberg)
