Wall Street bankers tasked with getting Facebook’s massive initial public offering off the ground next month are encountering some turbulence.
CEO Mark Zuckerberg’s $1 billion purchase of mobile photo-sharing app Instagram comes just as underwriters prepare to pitch the social network to deep-pocketed investors in a bid to raise as much as $10 billion.
The timing of that pricey purchase — coupled with a fresh bout of uncertainty in the stock markets — has raised eyebrows on Wall Street, where it is rare for a company to make such a bold move ahead of its public debut.
“People are wondering if [Facebook] couldn’t have waited until after the IPO [to purchase Instagram],” said one source, who declined to be identified.
Although Facebook is still awaiting IPO clearance from regulators, underwriters led by Morgan Stanley are hoping to launch the company’s share sale next month, possibly the week of May 14. Bankers plan to start the investor marketing campaign, known as a “road show,” about two weeks prior its launch.
Zuckerberg held discrete talks with Instagram’s founders and managed to keep underwriters in the dark about the sale until late in the process, sources said.
Critics of the controversial deal say Facebook’s timing for the acquisition is questionable, while supporters argue that the Instagram purchase enhances Facebook’s platform and stymies rivals.
Most troubling is whether Facebook’s eagerness — some say desperation — signaled that the social networking giant saw rival Instagram as more of a threat than an opportunity.
The biggest challenge will be persuading potential investors that Facebook is worth north of $100 billion.
While appetite for Facebook’s shares is strong enough to withstand shaky market conditions, bank sources say stability makes it easier to “maximize” the company’s valuation at the high end of the range.
Facebook’s IPO is expected to value the company somewhere between $75 billion and $100 billion.
At this point, miffed Wall Streeters might have to wait until early May to get more details on the stock offering, when the road show gets underway.