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David Ebersman: The man behind Facebook's IPO debacle

Now, three months after the offering, the company has lost more than $50 bn in market value

Andrew Ross Sorkin 

It is David Ebersman's fault. There is just no way around it.

Ebersman is Facebook's well-liked, boyish-looking 41-year-old chief financial officer. He's not as well known as Mark Zuckerberg, Facebook's founder and chief executive, or Sheryl Sandberg, its chief operating officer and recently-appointed director.

But when it came to Facebook's catastrophe of an initial public offering — the stock reached a new low on Friday, closing at $18.06 — it was Ebersman, not Zuckerberg or Sandberg, who was ultimately the one pulling the strings.

Now, three months after the offering, the company has lost more than $50 billion in market value. Let me say that again for emphasis: Facebook's market value has dropped more than $50 billion in 90 days.

To put that in perspective, that's more market value than Lehman Brothers gave up in the entire year before it filed for bankruptcy.

UNDER THE SPOTLIGHT
Facebook  (for 2011)
Salary $295,833
Bonus $170,508
Restricted stock awards $18,294,952
All other compensation $0
Option awards $0
Non-equity incentive plan
compensation
$0
Change in pension value and
nonqualified deferred compensation earnings
$0
Total Compensation $18,761,293
Ironwood Pharmaceuticals (for 2009)
Stock awards $277,759
Total compensation $277,759
Source: Forbes

A lot of ink has been spilled over Facebook's IPO, with investors and pundits mostly pointing the finger at the Wall Street banks, particularly Morgan Stanley, which led the offering, and at Nasdaq, whose numerous computer glitches on Facebook's first day of trading undermined confidence in the stock. They clearly deserve blame.

Ebersman's name, however, is mentioned only occasionally, usually in passing and typically only among Silicon Valley's cognoscenti.

And yet if there is one single individual more responsible than any other for the staggering mispricing of Facebook's IPO, it is Ebersman. He signed off on the ever-increasing offer price, which ended up at $38 after the company had originally planned a price range of $29 to $34.

He — almost alone — pushed to flood the market with 25 per cent more shares than originally planned in the final days before the offering. And since then, as the point person for investors, he has done little to articulate how or why the company's strategy will lift the stock price any time soon.

At a time when investors are looking for some semblance of accountability on Wall Street and in corporate America, it is remarkable that nobody — no bankers, no one at Nasdaq, no one at Facebook — has been fired for botching the offering.

Zuckerberg reportedly told his employees after the IPO, "So, you've heard we're firing David?" But it was only a joke.

Facebook's falling stock price is not just a problem for investors; it is quickly creating real questions inside the company about its ability to retain and attract talented engineers, the lifeblood of any company.

Employees who joined the company starting in 2010, for example, are now holding onto restricted shares that were granted at a higher price — $24.10 — than the current trading price. (It should be noted that these are restricted stock units, not underwater stock options, so they do still have real value, but not nearly what the employees had expected.)

Employees with some two billion shares will have the opportunity to begin selling them this fall, which is one reason Facebook shares have been depressed lately.

A spokesman for Facebook, Elliot Schrage, declined to comment and would not make Ebersman available.

Ebersman appears to have badly misjudged the demand for Facebook's IPO. He was aided by errant advice from a cadre of banking advisers, who all had an incentive to sell as many shares as possible at the highest price possible. Morgan Stanley liked $38 a share, JPMorgan Chase thought the shares could be sold for even more, while Goldman Sachs thought they should be sold for slightly less — but all of them quickly jumped on board when Ebersman made his final decision.

Determining the price of an IPO is as much an art as a science. After a company's roadshow presentations, investors indicate how many shares they plan to buy. They typically ask for more shares than they expect to receive, sometimes twice as many. But in the case of Facebook, investors, anticipating huge demand, put in requests for triple or quadruple the number of shares they expected to get.


© 2012 The New York Times News Service

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First Published: Wed, September 05 2012. 00:00 IST
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