Facebook creates dual-class structure, but no IPO

Nov 24, 2009 By BARBARA ORTUTAY , AP Technology Writer
FILE - In this Nov. 6, 2007 file photo, Facebook CEO and founder Mark Zuckerberg speaks to press and advertising partners at an event in New York. Facebook on Tuesday, Nov. 24, 2009 created a dual-class stock structure designed to give Zuckerberg and other existing shareholders control over the company. (AP Photo/Craig Ruttle, File)

(AP) -- Facebook has created a dual-class stock structure designed to give founder Mark Zuckerberg and other existing shareholders control over the company.

The move could be seen as laying the groundwork for an initial public offering, though the social network said Tuesday it had no plans to go public "at this time."

The dual-class structure is what Inc.'s founders, Larry Page and , created to keep voting control over that company before it went public in 2004. Google's Class B shares, owned by Page, Brin, and some directors, hold 10 times the voting power as its regular, Class A stock.

In a statement, Facebook Inc. said the company introduced the stock structure because its existing shareholders wanted to keep control when voting on issues it faces.

The company didn't say which executives and employees would get the shares with the higher voting power. The , citing unnamed sources, said Facebook was converting the shares of all its current stockholders into Class B shares that, like Google's, hold 10 times the voting power of Class A stock.

That would be a departure from Google's decision to keep such shares in the hands of a few top executives - something for which the search company has been criticized.

Dual-class structures aren't limited to high-tech companies. The Co., among others, has one to give control to the Ochs-Sulzberger family even though its members own only one-fifth of the newspaper company.

Creating a class of shares with more voting power and keeping those shares in the hands of founders and employees can potentially allow a company to take more risks even at the expense of short-term investors, said Standard & Poor's equity analyst Scott Kessler, who has followed Google since its .

Both Google and Warren Buffett's Berkshire Hathaway Inc., another company with a dual-class stock structure, take a long-term view of their business and isn't always seen as friendly to investors, he added.

For example, neither company has ever split its stock: Google's shares closed Tuesday at $583.09, while Berkshire's was at $102,700. A stock split makes a company's shares cheaper, opening them to more investors, even those who could simply looking to make a quick buck.

"They want to promote and preserve true long-term holders of the stock," Kessler said.

Facebook's chief operating officer, Sheryl Sandberg, worked at Google when that company went public. Facebook, which is based in Palo Alto, Calif., has lured other employees from Google as well.

Facebook, which has more than 300 million users, has raised more than $600 million from investors since it was founded more than five years ago. Its most recent infusion came this spring from Russian Internet investor Digital Sky Technologies, which invested $200 million in exchange for a 2 percent stake in the company, valuing Facebook at $10 billion.

It was not clear which class of stock Facebook would use if it uses stock to buy other companies in the future.

The company said recently that it was "cash-flow positive" in the second quarter, which means it brought in more money than it spent. While this doesn't necessarily mean that is profitable by the measures most companies use - taxes, debt payments and accounting charges can use up the remaining cash - it was an important milestone.

©2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Explore further: EU Parliament votes to break up Google

add to favorites email to friend print save as pdf

Related Stories

Facebook says it passed key financial milestone

Sep 15, 2009

(AP) -- Facebook Inc. said Tuesday it achieved an important financial milestone, bringing in more money than it spent in the last quarter. The social networking site previously had said it didn't expect to ...

Facebook's $200M investment values co. at $10B

May 26, 2009

(AP) -- Facebook is getting a $200 million investment from a Russian Internet investor that values the social networking company at $10 billion even though it has yet to turn a profit.

Recommended for you

EU Parliament votes to break up Google

9 hours ago

The European Parliament voted overwhelmingly for the break-up of Google Thursday in a largely symbolic vote that nevertheless cast another blow in the four-year standoff between Brussels and the US Internet ...

Toyota finds new air bag issue, recalls more cars

13 hours ago

Toyota Motor Corp. recalled more than 40,000 vehicles in Japan on Thursday as part of a worldwide scare over defective air bags and is investigating a new type of air bag problem that could lead to further recalls.

Netflix sues Yahoo CIO for alleged kickbacks

Nov 26, 2014

Netflix is suing a former company vice president who is now chief information officer at Yahoo, accusing him of receiving money from vendors he hired to work with the video streaming company.

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.