Facebook Director Thiel Sold 20.1 Million Shares After Lock-Up - Bloomberg

Peter Thiel at the National Press Club in Washington, DC.

Facebook Inc. (FB) director Peter Thiel sold most of his stake in the operator of the world’s largest social-networking website, bringing his proceeds to more than $1 billion, after restrictions on insider sales ended.

Thiel, one of Facebook’s earliest investors, sold about 20.1 million shares in the company on Aug. 16 and Aug. 17, raising $395.8 million, according to a filing yesterday with the U.S. Securities and Exchange Commission. Thiel, a venture capitalist and hedge-fund manager, had already generated $640.1 million in sales during the initial public offering.

With an investment of $500,000 in 2004, Thiel is one of the biggest beneficiaries of Facebook’s gain before going public. Later backers haven’t fared as well, with the stock losing almost half its value since the IPO amid signs that the company’s growth is slowing and concerns that more insiders will exit their stakes. The sales disclosed yesterday were tied to a plan adopted on May 18, Facebook’s first day of trading.

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“As of last May, he had basically handed over discretion about these sales,” said Stephen Diamond, associate professor of law at Santa Clara University.

Jeremiah Hall, a spokesman for Thiel, and Ashley Zandy, a spokeswoman for Facebook, declined to comment.

Dustin Moskovitz, who founded Facebook with Mark Zuckerberg and others at Harvard University, sold 450,000 shares for $8.83 million after the lock-up expired, leaving him with 7.05 million Class A shares, according to a filing. Moskovitz also holds 126.2 million Class B shares.

Facebook last week unlocked 271.1 million shares, the first of five insider-sale restrictions scheduled during the company’s first year as a public company. Another 1.44 billion shares will be freed up through November.

Shares of Menlo Park, California-based Facebook fell 4.3 percent to $19.16 at the close in New York.

Another Facebook investor, Accel Partners, distributed more than 50 million shares to investors in the venture capital firm’s funds on Aug. 16, according to another filing yesterday.

Thiel’s sale, at prices from $19.27 to $20.69 a share, represents most of the 27.9 million shares the investor held after the IPO. He still holds more than 5 million shares, and the proceeds don’t reflect underwriter or broker fees.

Thiel freed up extra shares for sale when he converted more than 9 million shares to Class A from Class B, according to a document filed Aug. 10 with the U.S. Securities and Exchange Commission.

As a co-founder of PayPal Inc., he served as chief executive officer until the company was bought by EBay Inc. (EBAY) for $1.5 billion in 2002. Thiel, who’s also a member of the so- called “PayPal Mafia,” used his fortune to start hedge fund Clarium Capital Management LLC and to invest in startups.

One of those startups was Facebook, a social-networking service devoted to college campuses at the time of the investment in 2004. Thiel also participated in a $25 million funding round in 2006 when the company was valued at $500 million.

-- Editors: Reed Stevenson, Ben Livesey

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Aug. 21 (Bloomberg) -- James Cox, a securities law professor at Duke University, talks about a U.S. Securities and Exchange Commission filing that shows Facebook Inc. director Peter Thiel sold most of his stake in the company. He speaks with Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)

Aug. 20 (Bloomberg) -- Lawrence Haverty, a portfolio manager at Gamco Investors Inc., talks about a lack of merger activity. Haverty speaks with Erik Schatzker and Sara Eisen on Bloomberg Television's "Surveillance." William Cohan, author and Bloomberg View columnist, also speaks. (Source: Bloomberg)

Enlarge image Facebook Inc.'s share price at the Nasdaq MarketSite in New York on Aug. 16, 2012.

Facebook Inc.'s share price at the Nasdaq MarketSite in New York on Aug. 16, 2012. Photographer: Peter Foley/Bloomberg

Facebook Inc. director Peter Thiel. Photographer: Jin Lee/Bloomberg

Facebook Shares Hit New Low as a Lockup Period Ends

The company’s widely anticipated public debut seems to have been jinxed from the start, and for a variety of reasons, including technical problems on Nasdaq and slowing sales growth. Complicating its recovery is the prospect of about two billion shares that early investors and employees will be able to sell beginning this week and continuing through next May.

The first and smallest opening in that gate was Thursday, when about 271 million shares were eligible to be sold. The shares are held largely by early investors, like Accel Partners and Goldman Sachs. It is unclear whether they were sold Thursday; the transactions are likely to take some time.

But trading volume in the stock was high: 157 million shares, versus a 30-day average of 31 million.

Companies that go public typically compel insiders to hold on to their stock options for a period of time, to prevent the market from being swamped with surplus shares. The end of the lockup period, as it is known, can typically weigh on value. That is especially painful for Facebook at the moment, because its value has already fallen so precipitously and unexpectedly.

The largest tranche of shares are eligible to come on the market in November, so Facebook could face a deflated stock price for some time to come.

The lockup expiration adds pressure to acute difficulties already facing the company, which made its Wall Street debut with an eye-popping $100 billion valuation barely three months ago. The low stock price complicates Facebook’s ability to attract and retain employees. Without prospects of the stock rising rapidly, prospective employees may choose to work at hot start-ups where they can foresee stock gains that would supplement their salary.  

For its stock price to go up, Facebook has to convince Wall Street analysts and investors that the personal data its 955 million users share about themselves can be better used to make money. Despite the fact that Facebook has information about a user’s friends, habits and photos, advertisers are not convinced that Facebook ads are more effective than online ads appearing elsewhere.

So far, its revenue comes largely from advertising and from proceeds of virtual games that people pay to play on the Facebook platform. On both counts, Facebook has struggled, as the company reported slower sales in its earnings report in late July. Its users are increasingly logging in to their accounts on mobile devices, where Facebook has only recently — and cautiously — started selling advertisements. And its vital partner, the social games developer Zynga, has hit speed bumps of its own and its shares have plunged.

“All the lockup is doing is enabling people to sell,” said Richard Greenfield, a media analyst with BTIG, a brokerage firm. “The issue is still confidence in Facebook’s transition from the PC to mobile.”

Mr. Greenfield was among those who advised against buying Facebook shares during its initial public offering. He still advises against it. Some investors are still smarting because many of Facebook’s early big backers — including Accel Partners, one of its first venture capital investors — sold a hefty portion of their shares at the peak price in May. Mark Zuckerberg, a co-founder and chief executive, also sold a portion of his shares in the offering — to meet his tax bills, the company said. All told, early backers sold over $9 billion in shares, though they still own significant amounts.

Some of those early backers — though not Mr. Zuckerberg — were eligible to sell their shares starting Thursday.

Investors who remain confident in the company’s future point out that it is still profitable, with a potential to become a lucrative advertising platform. Facebook is experimenting with new ways to make money, including creating new advertising tools and offering online gambling to its users in Britain.

This article has been revised to reflect the following correction:

Correction: August 16, 2012

An earlier version of this article, and its headline, incorrectly described the period in which insiders must hold their stock options in a newly public company. It is known as the lockup period, not the lockout period.