By BERNARD CONDON
AP Business Writer
NEW YORK (AP) - Taking a company public isn't as simple as collecting Facebook friends.
Even if the company is Facebook.
When its stock started trading Friday under the symbol FB, buyers quickly bid the price up 6 percent. Yet by the time trading ended at 4 p.m. Eastern time, Facebook's stock had squeaked out a gain of just 23 cents above its initial $38 offering price.
Even at that price, the 8-year-old social media company is worth $104 billion, more than such giants as Disney and Kraft. The stock riches that flowed to Facebook and its early investors totaled nearly $16 billion.
As with any initial offering, Facebook's IPO follows lots of negotiation _ over price, paperwork, selling and buying. Here are some questions and answers about its public debut:
Q: So why did Facebook go public?
A: For the same reason many other fast-growing companies do: to raise money. Selling stock to the public gives companies money to run their businesses, expand and buy other companies. Sometimes companies go public even if they have no plans for the money. Facebook says it wants to establish a public market for its shares in case it needs to raise money from investors in the future.
Q: What happens in an IPO?
A: The company sells ownership stakes to the public for the first time. Facebook sold 421 million shares. That represented a 15 percent stake in the company. The sale raised $16 billion.
Q: Who owned Facebook shares before the IPO?
A: Well-connected investors, employees and top insiders like company directors. They sold 241 million shares, or more than half the total sold. The company sold shares at $38 each. At that price, those early owners pocketed $9 billion, or an average of $230 million each. The company will get $7 billion.
Q: Who bought the shares?
A: In an IPO, there are two buyers. The first are the investment banks that helped the company file IPO documents with regulators and contacted pension funds, mutual funds and other big institutions to gauge a price for the shares. These investment banks are called underwriters. In Facebook's case, 33 banks helped; Morgan Stanley took the lead role. The underwriters guaranteed the company that they would buy all the shares at the IPO price.
Q: When did the underwriters buy the shares?
A: Before the shares started trading publicly. Facebook's underwriters sold the sellers' shares Thursday night. But first, the underwriters had to negotiate a price with a second group of buyers _ the institutions that had promised to buy shares from them. They did that Thursday, settling on a price of $38.
Q: Is this negotiated price the IPO price?
A: Yes. But that's not what the underwriters paid the company and insiders. After settling on an IPO price, the underwriters subtracted a commission for their work. A document Facebook filed with regulators didn't say how much it would pay. But with big IPOs like Facebook's, the commission is typically 3 percent. At $38, this means Morgan Stanley and the other underwriters would get $1.14 off for each share. They'd pay $36.86 a share. Underwriters have five days to transfer the money to the company and other sellers.
Q: What do underwriters do with their shares?
A: They sell them to big institutions, along with some favored individual investors, before public trading starts. In Facebook's case, all the underwriters' shares were sold by Friday morning before the stock exchanges opened at 9:30 a.m. in New York.
Q: Why didn't Facebook begin trading then?
A: The new owners who want to sell their shares had to call their traders first. And the traders had to call "market makers" at the Nasdaq stock market, where Facebook's shares are listed. Market makers are firms that agree to hold shares in a company so buyers and sellers can easily trade them. The market makers determine a price between what most buyers and sellers are demanding. That took two hours on Friday morning, after which the first Facebook shares began exchanging hands.
Q: So Facebook is now worth more than $100 billion. What's that mean, exactly?
A: This is the company's "market value." It's what investors think the whole company would be worth if all its shares were trading. The 421 million Facebook shares sold in the IPO at $38 works out to $16 billion. Applying the same price to the rest of the shares yields $88 billion. Add the two figures, and you get $104 billion.
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