Goldman Sachs is limiting the sale of $1.5 billion in Facebook private shares to offshore investors in order to avoid clashing with U.S. laws intended to keep private placements from getting over-hyped, which in this case refers to the media. The limitation solves the problem of demand far outstripping supply, as some $7 billion of preliminary share orders had come in.
The investment bank told The Wall Street Journal that the “intense media attention” the Facebook deal has gotten “might not be consistent with the proper completion of a U.S. private placement under U.S. law.”
Goldman clarified that it made this change because of its own decision, and wasn’t required or asked to do so by the Securities and Exchanges Commission, nor any other entity. The company clearly became worried about regulatory vulnerability, as the SEC has in the past halted or postponed issuances when the parties involved spoke to the media despite bans on doing so.
For the Facebook deal, Goldman had repeatedly told prospective investors not to disclose any details about the private offering, but obviously some leaked information and even shared copies of the offering memoranda with the financial news media.
While the Journal didn’t quantify how much of the $7 billion in orders for Facebook stock came from outside the U.S., an unnamed source told the newspaper that Chinese investors were especially interested in the deal. Goldman has told all of the buyers that still qualify for the transaction to pay for the shares by the end of the week.
The Chinese demand for the shares brings to mind the fact that one of China’s largest social networks, Renren, plans an initial public offering in the U.S., and two others may follow. Allowing investors from Asia to buy shares of Facebook seems justified by the fact that Americans will likely get first dibs on the stocks of at least one social media company from that part of the world.
Meanwhile, it’s unclear whether selling shares only outside of the U.S. would affect whether Facebook would need to begin disclosing financial data to the public starting April, 2012. Similarly, we’ve yet to learn whether moving the stock overseas would alleviate any pressure on the company to have an initial public offering.
What do you think about the latest turn of events in the Goldman Sachs and Facebook financing?