sikiliza (< 20)

Margin Stanley and the 40 Thieves

May 25, 2012 – Comments (2) | RELATED TICKERS: FB , MS

During the era during which the the collection of stories known as One Thousand and One Nights was written, if you were a storyteller, you had to come up with an endless stream of stories otherwise you would lose your head, literally. People got really creative and came up with some of the most fascinating tales that humanity has ever countered.

Therein ends our analogy. In the case of Margin Stanley, greed and the need for a $100B tombstone in Michael Grimes' office trumped the responsibility to ensure that investors got a chance to participate FAIRLY in Facebook's (former) growth story. Alas, it was not to be. According to Professor Aswath Damodaran at NYU and who is also known as the modern-day Ben Graham, what went on behind closed doors at MS was not a valuation process but rather a set of pricing decisions. They had to ensure that the shares got sold at $38 and that everyone (not including retail muppets) that wanted shares, would get some.

Enter, David Ebersman, the Facebook CFO, who though greatly respected for his successful finance career at Genentech was yet to encounter the Wolves of Wallstreet. At the drop of a coin, he acquiesced to increasing the float by 25%. The poor lad failed to protest enough. He was green, you see.

Then the ball landed squarely in NASDAQ's court and they literally ducked. Not only did they install a remote market opening bell ringer in Palo Alto for the pleasure of his majesty and his royal court but they also failed to keep their eye on the ball. And that ball moved fast. Facebook went live and for the first 38 minutes stayed on a suspiciously even course at $42 before dropping like a rock. Meanwhile buyers and sellers did not hear a pip from the pits.

By the end of the day last Friday, the game had been won. The Muppets had been slaughtered and all that was left was for by-standers like you and me to stare at the wreckage that was the Facebook IPO.