Goldman Sachs will limit its private placement of shares of social networking site Facebook to investors outside the United States, citing “intense media coverage,” the investment bank said.
Goldman expects to raise $1.5 billion for Facebook, the wildly popular site used as a message board and for online social networking. The chance to buy a slice of Facebook ahead of any future public listing attracted widespread commentary and news coverage, which potentially could bring it under regulatory scrutiny.
“In light of this intense media coverage, Goldman Sachs has decided to proceed only with the offer to investors outside the U.S.,” the company said in a statement provided to Reuters.
Goldman began notifying clients of its decision on Sunday.
“We regret the consequences of this decision, but Goldman Sachs believes this is the most prudent path to take,” Goldman said in the statement on Monday.
Goldman said the decision not to conduct a private placement of the shares of Facebook, a closely held company, in the United States was solely its own and was not required or requested by any other party. That would include the U.S. Securities and Exchange Commission, which is scrutinizing secondary market trading in Facebook shares.
“Once this event received widespread publicity, it conceivably could be argued that Goldman was benefiting from a general solicitation, via news reports of its efforts on behalf of Facebook,” former SEC Chairman Harvey Pitt said.
“My impression is that Goldman is using that as an excuse to save face, given the SEC investigation that has been publicized in the press, as a result of this proposed transaction,” said Pitt, who is chief executive of consulting firm Kalorama Partners.
While general solicitation and advertising is still prohibited overseas, if the publicity has not been as widespread in other countries, the issuer and the underwriter could get comfortable proceeding with the offering, said an industry attorney who has advised companies with similar issues. The Washington, D.C.-based attorney asked not to be identified because of the sensitivity of the issues surrounding
Goldman originally had planned to conduct a private placement in the United States and offshore, it said in the statement.
Facebook already has received a $450 million investment from Goldman Sachs and $50 million from Russian investment firm Digital Sky Technologies, in a deal that valued the company at $50 billion.
Several weeks ago, Goldman approached its best private wealth clients with an offer to take part in a special fund that will own shares in world’s biggest social networking site. The deal would allow Goldman to offer clients a hot investment opportunity, while allowing Facebook gets to remain a private company.
However, the transaction generated intense media attention “following the publication of an article on the evening of January 2” Goldman said. On that date, the New York Times’ DealBook column reported a story saying that Goldman had reached out to its private clients with an offer to invest a minimum of $2 million in Facebook before a possible public offering in 2012. The article, citing emails to clients, also said investors would be prohibited from selling their shares until 2013.
Under U.S. securities law, if a company’s private shares are held by more than 500 holders of record, the company is required to register with the SEC and file public disclosure statements. But the rules generally define the term “record holder” as the name displayed on the company’s stock record, and not the beneficial owner of the stock.
The shares in the Goldman private placement would be in a special purpose vehicle, registered in Delaware, Facebook disclosed earlier this month. This would allow numerous investors the opportunity to buy stock, but holdings would have been under one name.
Facebook said it expected to have more than 500 shareholders this year, according to documents related to the private placement, That could force the company to make public disclosures or go public as early as 2012.