Facebook is splitting shares 5-for-1

http://www.reuters.com/article/idUSTRE6904J720101001

by msort • 16 years ago

2 1 16 years ago

ghshephard• 16 years ago

So, the following comment was made: "Part of the reason for Friday's split, said Facebook spokesman Jonny Thaw, was to help reduce the price of Facebook's shares, which have risen significantly in recent years."

Now, a reasonable argument can be made that once shares start to be worth more than $10,000 - and certainly in the case of outliers like BRK-A (currently at $124,015/share), there is an argument for a split (or, in the case of BRK, a tracking stock - BRK-B) - simply to prevent the creation of pools that allow people who don't want to buy $10,000 in a single stock to participate. (I think that's why Warren had BRK-B created)

But, facebook is trading in the secondary markets (sharespost) at $72. Even assuming they double in value, that would suggest a price that anyone who wanted to purchase, could do so.

So, clearly, there is another reason as to why this stock is being split - and I don't put much merit in the "When a stock is split, it shows an increase in value" - I have far too much faith in the efficient market to put much belief in that nonsense.

My theory, is that there are other, secondary benefits from splitting a stock. My two guesses are:

o Bankers get to book a bunch of revenue from splitting the stock and the paperwork that goes with it, so they sell mgmt on the idea.

o Some legal advantage to splitting shares, and possibly doing an inventory of all the stock certificates outstanding, getting an audit of the shareholders, etc...

Is there anybody that has been on the decision making team for a stock split that would like to weigh in on this one?

Facebook is splitting shares 5-for-1

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