Few IPOs have garnered as much attention as social media giant Facebooks public offering on May 18, 2012. It was the biggest IPO in internet history, easily topping Googles IPO eight years earlier. Lets take a closer look at the IPO itself, as well as the payoffs to some of Facebooks early investors. 1. Begin by navigating to the SEC EDGAR Web site, which provides access to company filings: http://www.sec.gov/edgar.shtml. Choose Search for Company Filings and pick search by Company Name. Enter Facebook and then search for its IPO prospectus, which was filed on the date of the IPO (May 18, 2012) and is listed as filing 424B4 (this acronym derives from the rule number requiring the firm to file a prospectus, Rule 424(b)(4)). From the prospectus, calculate the following information: a. The underwriting spread in percentage terms. How does this spread compare to a typical IPO spread? b. The fraction of the offering that comprised primary shares and the fraction that comprised secondary shares. c. The size, in number of shares, of the greenshoe provision. What percent of the deal did the greenshoe provision represent? 2. Next, navigate to Google Finance (http://www.google.com/finance) and search for Facebook. Click the Historical prices link to find the closing price of the stock on the day of the IPO (May 18, 2012). What was the magnitude of underpricing for Facebook IPO (i.e., what was the first day return)? How does this return compare to the typical IPO? 2 3. Use the data provided by Google Finance to calculate the following items: a. Calculate the performance of Facebook in the three-month post-IPO period. That is, obtain the three-month holding period return an investor would have received if he had invested in Facebook at the closing price on the IPO day and sold the stock three months later at the closing price on August 17, 2012. Annualize the holding period return for comparison purposes. You can use the following formula to compute the annualized return. 1 12 Annualized return 1 Holding period return Holding period in months b. Do similar calculation for a roughly three-year holding period (i.e., the 34-month post-IPO period) using the closing price on March 17, 2015. Again, express the performance in terms of annualized return. c. How do these returns compare to the typical IPO? 4. Prior to the public offering, Facebook was able to raise equity capital from Microsoft Corporation. That is, Microsoft was one of pre-IPO shareholders. a. Microsoft made one investment in Facebook, during October 2007. Go to Facebooks corporate news Web site (http://newsroom.fb.com/news) and locate from Archive the press release announcing this investment; the article titled Facebook and Microsoft Expand Strategic Alliance and released on October 24th, 2007. Find the information on the dollar amount Microsoft invested in Facebook. Then go back to the IPO prospectus, go to the section titled Principal and Selling Stockholders, and find the number of Shares Beneficially Owned Prior to this Offering by Microsoft. Combining these two pieces of information, calculate the per share price Microsoft initially paid. b. Calculate the annualized return Microsoft earned on its investment up to the IPO point (regarding the IPO offer price as selling price). Note that the holding period is about 55 months in this scenario. c. If Microsoft, as one of the selling stockholders, sold all shares at the IPO price, how much money would it have received from the IPO?