Facebook insiders can sell stock as 'lock-up' ends
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Facebook insiders can sell stock as 'lock-up' ends

Menlo Park (California): Facebook's early investors and a handful of directors will become eligible on Thursday to sell stock they own in the social networking company. It marks the beginning of a time-honored process for public companies, one that will give many Facebook employees the same right to sell their shares this fall.

It's conceivable none of them will sell. But if they do, up to 1.91 billion more shares could flood the stock market over the next several months -- more than four times the 421 million shares that have been trading since Facebook's initial public offering in May.
Facebook insiders can sell stock as 'lock-up' ends
So-called "lock-up" periods, which prevent insiders from unloading shares too close to an IPO, generally start to expire 90 days after a stock makes its public debut. The progressive phasing-in of various shareholders allows early owners to shed their stock and make way for new investors, says Peter Zaleski, a professor of economics at the Villanova School of Business in Pennsylvania.

But there's risk involved, too. If too many people sell, Facebook's stock price could decline. That's a problem the company can't afford. On Tuesday, the stock closed at $20.38, down 46 per cent from its initial public offering price of $38.

In all, 271 million shares will become eligible this week, according to Facebook's regulatory filings. Firms ranging from Accel Partners to Goldman Sachs, Zynga CEO Mark Pincus and Facebook board members James Breyer, Peter Thiel and Reid Hoffman are among those free to sell. Microsoft Corp., another early Facebook investor, will be eligible to sell, too.

Facebook's 28-year-old chief executive, Mark Zuckerberg, won't be able to sell his shares until mid-November. Facebook hasn't explained why Zuckerberg didn't become eligible this week. He controls about a third of the 1.22 billion shares and stock options that will become unlocked on Nov. 14.

Wedbush analyst Michael Pachter believes it's unlikely that top executives will sell their shares as soon as they can. It would look bad for the company, Pachter says, if Facebook's No. 2 executive and operating chief Sheryl Sandberg or finance chief David Ebersman decide to sell. 'The only people who would sell are people who need the money,' Pachter says. 'I would be very worried if Sheryl Sandberg or Ebersman sell, but they are not that dumb.'

Following this week's lock-up expiration date, about 243 million more Facebook shares and stock options will enter the public stock market between Oct. 15 and Nov. 13. That's when current and former Facebook employees will be able to sell stock they earned as compensation.

Then there's the November 14 expiration, and another one a month later. Next May, a year after Facebook's IPO, the Russian Internet company Mail.ru Group and DST Global -- both of which made early investments in Facebook -- will be able to sell their shares.

The early investors who sold their stock to the public as part of Facebook's IPO did so at $38 each. If they sell now, they will make far less money from each share than they did in the IPO. Facebook's stock has not hit its IPO price since its first day of trading. As a result, the company's market value has plummeted from $104 billion to $59.1 billion in roughly three months.
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