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Facebook Lets Employees Cash Out: Why It's an All Around Smart Move

Facebook is apparently about to let employees cash out shares with a $1 billion private placement, which gives the company a $60 billion valuation. It's a smart move that quiets employee relations and regulatory problems while helping to frame a more successful eventual IPO.

Facebook has been a preternaturally successful start-up, even by Silicon Valley measures. Not only does the company make money, but it has become an indispensable strategic decision factor in many industries.

Part of what has allowed it to move so quickly and decisively is that Facebook has remained privately held. Start filing SEC disclosures, and you both tip your hand and have to answer to incessant Wall Street yammering for performance, even when smart moves demand something other than analysts' expectations.

Keep Employees from Walking....Back to Google

But the perpetual IPO postponement has created some problems for Facebook. One is with employees. The company has used stock as a way to entice top talent from other companies. (Google (GOOG) has had to pony up in a big way with existing employees to keep them from walking.)

Unfortunately, moving stock in a private company is pretty hard, and it has little value just sitting on the shelf. There are secondary markets that already trade Facebook shares, but the company forbid employees from taking part last April.

That doesn't sit well when there is big news of Goldman Sachs (GS) creating a big private placement of Facebook shares. The last time employees had a chance to cash out was July 2009.

What a Windfall for Workers
A private placement created for employees helps remove pressure on the human resources front with a windfall. The previous employee private placement was a ninth the size, and shares went for $14.77. There are going to be some financially flush faces at Facebook.

By selling off stock, there's the chance that some employees will completely cash out, which helps reduce the number of shareholders and, as a result, the chance of reaching SEC limits that would force an IPO.

As far as an eventual public offering, it's hard to think of better activity to boost a company's perceived standing and drive a high initial price for shares of stock.


Image: morgueFile user cohdra.
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