Who’s accountable for Facebook IPO flop?


Abigail Hofman
Published on:

In my last column, I predicted that the over-hyped Facebook initial public offering was an ominous sign for the health of equity markets. Nevertheless, Facebook and flop were not words I expected to see in the same sentence. I was wrong. I’ve watched some deals backfire during my time as a Euromoney columnist: the listings of Bumi and Blackstone come to mind as well as Prudential’s grandiose plan in 2010 to purchase AIA, the former Asian arm of AIG. But the Facebook IPO is one of the biggest collapsed soufflés of them all.

Teeny-bopper CEO Mark Zuckerberg will not be pleased. He is not at ease with the press: something that will have to change now that he is leading a public company. The current adverse publicity will not be going down well at the company’s Menlo Park headquarters.

For a seasoned cynic such as myself, the hype surrounding the deal was a counter-indicator. For days before the launch, business network CNBC had round-the-clock coverage of Facebook: various talking heads opined on anything from Zuckerberg’s upbringing to the valuation of the deal. And of course the valuation at some 75 times projected 2012 earnings was absurd. Many sophisticated investors such as hedge funds and private equity firms had acquired stakes in the company over the past few years. These organizations sold shares in the IPO. The smart money exited as retail plunged in.

As for the execution of the deal, many mistakes were made by many people. Zuckerberg’s decision to keep a controlling voting stake in the company is a negative. The company’s decision, presumably discussed with the underwriters, to increase the size of the deal and the pricing was a mistake. And, the exchange, Nasdaq, is culpable too: initial trading was delayed and there were problems confirming orders. "I have one word for you," a capital markets expert snorted. "Inept."

The Facebook IPO was meant to be the poster child for American capitalism. Now everyone is suing everyone, which is also very American. Morgan Stanley, where I have a lot of friends, has sadly managed to pluck disaster out of the jaws of victory and has damaged its technology franchise.

Heads must roll as accountability is the essence of disciplined corporate governance. Just a thought, but which chief executive do you think had the worst May 2012? Facebook’s Mark Zuckerberg, JPMorgan’s Jamie Dimon, Nasdaq’s Bob Greifeld or Morgan Stanley’s James Gorman?