Facebook: Lock-up Expires on Largest Block of Shares

In this photo illustration, a Facebook logo on a computer screen is seen through a magnifying glass held by a woman in Bern May 19, 2012. REUTERS/Thomas Hodel

¬†Shares of Facebook Inc jumped 10 percent in early trading on Wednesday, even as the biggest block of shares held by insiders became eligible for sale for the first time since the social media company’s disappointing debut in May. In heavy morning trading, Facebook gained $ 2.02 to $ 21.89.

“While the lock-up is expiring, there is nothing requiring anybody to sell,” said Tim Ghriskey, chief investment officer at Solaris Group in Bedford Hills, New York. “Given the low price, these long-term holders are deciding to hold the stock and that is lifting it here as the fear of the expiration subsides.” Roughly 800 million Facebook shares could begin trading on Wednesday after restrictions on insider selling were lifted on the biggest block of shares since the May initial public offering.

The lock-up expiration greatly expanded the 921 million-share “float” available for trading on the market until now. Facebook, the world’s No. 1 online social network, became the only U.S. company to debut with a market value of more than $ 100 billion. But its value has dropped nearly 50 percent since the IPO on concerns about its long-term money-making prospects.

Insider trading lock-up provisions started to expire in August, and the rolling expirations have added to the pressure on Facebook’s stock. Pivotal Research Group analyst Brian Wieser said he didn’t expect Facebook insiders to sell all of their shares as the lock-ups expired.

“I would expect heavy volumes over the next few weeks, but not undigestible volumes,” said Wieser. By his estimates, roughly 486 million of the nearly 800 million newly freed Facebook shares will be sold.

There is some evidence that the heavy interest in shorting the stock was dissipating, given the poor performance since it first sold shares in May.

According to Markit’s Data Explorers, about 28 percent of the shares available for short-selling were being borrowed for that purpose, down from a high of more than 80 percent in early August.

Similarly, SunGard’s Astec Analytics, which also tracks interest in shorting, noted in a comment on Tuesday that the cost of borrowing Facebook shares is down more than 50 percent since the beginning of the month.

“Everything would seem to indicate the market is losing its appetite to short Facebook,” wrote Karl Loomes, market analyst at Astec. Several members of Facebook’s senior management have sold millions of dollars worth of shares in recent weeks through pre-arranged stock trading plans as lock-up restrictions expired.

Chief Operating Officer Sheryl Sandberg has sold roughly 530 million shares this month, netting just over $ 11 million, though she still owns roughly 20 million vested shares in Facebook.

In August, Facebook board member Peter Thiel sold roughly $ 400 million worth of Facebook stock, the majority of his stake, when an earlier phase of lock-up restrictions expired. Facebook’s 28-year-old chief executive, Mark Zuckerberg, has committed to not sell any shares before September 2013.

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