Facebook and Chairman and CEO Mark Zuckerberg are selling a combined 70 million shares of Class A stock as the social media company prepares to join the Standard & Poor's 500 index.
The offering includes more than 41 million shares from Zuckerberg, who also will buy Class B shares that carry more voting weight. After a premarket stock dip of more than 4 percent on the news, Facebook's stock recovered somewhat and was down less than 1 percent in afternoon trading on Thursday.
The Menlo Park, Calif., company said Thursday that the Class A shares will be offered mainly to index funds whose portfolios are based on stocks included in the index. The S&P 500 will add Facebook on Friday after markets close. The index is a list of companies that have a market capitalization over $4 billion and is meant to be a snapshot of the U.S. economy.
At Wednesday's closing price of $55.57 per share, that would put the total value of the offering, not counting expenses, at about $3.89 billion. Zuckerberg's offering of 41.3 million shares would generate about $2.3 billion based on Wednesday's close, not counting expenses.
The company said Zuckerberg will use most of the proceeds from his sale of Class A shares to pay taxes he will incur in connection with exercising an option to buy 60 million shares of Class B stock. He's also using part of it for charitable contributions.
It's Zuckerberg's decision to sell shares that likely led to Facebook's stock price decline.
That said, Standard & Poor's equity analyst Scott Kessler noted that Zuckerberg's ownership has declined “only slightly” since Facebook's May 2012 initial public offering, and that the planned sale “would only minimally reduce his stake and voting power.”
“We are not concerned by this news,” Kessler said in a note to investors, reiterating a “Buy” rating on Facebook's stock.
Each Class B share gives the shareholder 10 votes, while each Class A share comes with one vote. The deal will give Zuckerberg control over nearly 63 percent of the voting power of the company's outstanding stock, according to a Securities and Exchange Commission filing.
Facebook Inc. will offer 27 million Class A shares, and the company expects to use any proceeds for working capital.
The company will have 2.54 billion Class A and Class B shares outstanding after the offering, or about 4 percent more than it had at the end of September.
Facebook's shares dipped 49 cents to $55.08 Thursday afternoon. That's up about 44 percent from Facebook's $38 IPO price and down only slightly from the all-time high of $55.89 that it hit on Wednesday.