M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, August 16, 2012

More on Facebook's 3(a)(10) fairness hearing

I noted earlier in the week that Facebook will be issuing 23 million shares as consideration in its acquisition of Instagram pursuant to a 3(a)(10) fairness hearing exemption.  There are lots of good reasons to issue shares pursuant to a 3(a)(10) exemption - cost, timing, etc.  But, remember today is the day 270 million shares hit the market following the expiration of lock-ups, and FB has hit an all time low.  I suspect the market won't be all that happy to absorb 23 million more shares at the end of next week...

If you're at all interested, Facebook's fairness hearing package should published on the CALEASI database.  I just did a quick search and it's not there, yet.  

Oh, I commented for the FT on the Facebook fairness hearing.  I think I said something like "It was worth a billion at signing and now it's down by half, is that fair?"   Since I asked that question, let me answer it.  Uh...yes.  Instagram was a company that sold for $1 billion (30% cash and 70% stock)  despite having no revenue!  Is it fair to shareholders that their revenueless company now gets only $350 million of stock (or some rough equivalent) and $300 million in cash now that Facebook's shares have declined in value?  Sure it is.   Is it the highest price the board could have gotten?  Probably not. In hindsight, taking more of that in cash would have worked out better, but the Instagram board made a reasonable bet -- that FB shares might soar -- that turned out to be wrong.  No penalities for that.

In any event, Instagram has only a handful of shareholders who are all extremely close to management - the CEO of Instagram holds 45% of the shares himself.   I doubt any of them are going to show up at what will otherwise be a non-contentious hearing to demand more for their revenueless company.



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