The Great Facebook Race
Various outlets, including the NY Times and Techrunch are reporting that Microsoft and Google are competing to buy a 5% stake in Facebook at a price which would value the hot social network at north of $10b.
It's pretty clear why the big boys are making their moves. Microsoft and Google are clearly maneuvering to block each other from buying the company outright. It's less clear why Facebook would consider taking the cash from either company, rather than from a consortium of private equity firms, for two reasons.
The first reason is that taking a minority investment from either Microsoft or Google would presumably limit Facebook's ability to negotiate the best terms for an advertising sales deal once its current deal with Microsoft expires. If Microsoft is a 5% owner of Facebook, Google is unlikely to go the extra mile to win the deal, meaning that Facebook will be unable to squeeze the optimal deal out of Microsoft. Same goes for Google as a 5% owner.
The other, more important reason for avoiding selling a stake to a strategic investor is to avoid restricting exit options. Taking the cash from Microsoft or Google would mean that the Facebook shareholders' options are restricted to sale to the minority investor or IPO. Taking cash from financial investors (e.g. private equity) would mean that the shareholders would be able to run a dual-track process, including an auction among the various strategics (Microsoft, Google, others) pitted against an IPO.
You don't need an MBA to know that having two or more deep-pocketed strategics competing with the public (via an IPO) to buy the company is likely mean that shareholders will maximize value.
It's pretty clear why the big boys are making their moves. Microsoft and Google are clearly maneuvering to block each other from buying the company outright. It's less clear why Facebook would consider taking the cash from either company, rather than from a consortium of private equity firms, for two reasons.
The first reason is that taking a minority investment from either Microsoft or Google would presumably limit Facebook's ability to negotiate the best terms for an advertising sales deal once its current deal with Microsoft expires. If Microsoft is a 5% owner of Facebook, Google is unlikely to go the extra mile to win the deal, meaning that Facebook will be unable to squeeze the optimal deal out of Microsoft. Same goes for Google as a 5% owner.
The other, more important reason for avoiding selling a stake to a strategic investor is to avoid restricting exit options. Taking the cash from Microsoft or Google would mean that the Facebook shareholders' options are restricted to sale to the minority investor or IPO. Taking cash from financial investors (e.g. private equity) would mean that the shareholders would be able to run a dual-track process, including an auction among the various strategics (Microsoft, Google, others) pitted against an IPO.
You don't need an MBA to know that having two or more deep-pocketed strategics competing with the public (via an IPO) to buy the company is likely mean that shareholders will maximize value.
1 Comments:
Facebook always wants to dance with the giants but at the end it wants to be a giant also.
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