Why Does Facebook Want to Issue Class C Shares?



Facebook is preserving founder-led structure

Alongside its stellar 1Q16 results, Facebook (FB) announced that the company will create a non-voting Class C stock, allowing Mark Zuckerberg to retain full control of the company. The company contends that this is the key to its future growth. Earlier, Google (GOOG) and Under Armour (UA) announced the same move so that the founders could keep control of the respective companies.

According to Facebook, “The board believes that a large part of Facebook’s success has stemmed from the leadership, creative vision and management of Mark Zuckerberg, and that the company’s future success will depend on Mark’s continued leadership.”

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Facebook’s current dual structure

Currently, Facebook maintains a dual-class structure: Class A shares, which trade under the ticker “FB,” and Class B shares, which are owned by company insiders. The Class B shares don’t trade on an exchange.

According to the company, two new Class C shares will be issued as a one-time stock dividend. The Class C shares will have the same economic ownership as the existing ones but without voting rights. There will also be a new ticker for the new Class C stock.

Going forward, the company might face some challenges from investors. However, owing to its dual-class system, public investors can’t do much. Earlier, Facebook faced challenges from North Star Asset Management (NSAM) as a result of the company’s dual-class ownership structure allowing founders voting control.

Facebook makes up 5.4% of the PowerShares QQQ Series 1 ETF (QQQ).


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