Tags: Facebook | Shares | Sell | stock

Facebook Shares Could See Sell-Off in Three Months

Friday, 18 May 2012 08:27 AM

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Facebook shares could see a sell-off in three months, when a lock-up period ends.

Normally initial public offerings require shareholders in new companies to hold onto stocks not issued in the IPO for six months, but Facebook is only requiring investors to hang on to that chunk of equity for three months.

"Facebook has an unusually short lock-up period with the free float now expected to increase by 55 percent after just 91 days (equates to $10 billion worth of stock at high-end of current IPO range),” BTIG analyst Rich Greenfield writes in a note to clients, according to CNBC.

Lock-ups are designed to prevent volatility roiling initial public offerings.

But often when they end, a wave of selling ensues and prices fall.

"This sounds to me like the Facebook investors are scrambling over each other, yelling, 'Get me out!'" says Enis Taner, global macro editor at RiskReversal.com, CNBC adds.

"Meanwhile, the Muppets buy," Taner says, referring to lower-profile investors notoriously dubbed Muppets by one Goldman Sachs executive.

Facebook will go public at $38 a share, which values the company at around $104 billion.

Some analysts applaud the timing of the offering.

Stock markets have often roiled in volatility since the 2008 financial collapse, ensuing recession and tepid recovery since then.

"They could have gone public in 2009 at a much lower price," says Nick Einhorn, research analyst at IPO investment advisory firm Renaissance Capital, according to the Associated Press.

"They waited as long as they could to go public, so it makes sense that it's a very large offering."


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