Morgan Stanley: The big winner in Facebook news


There was some outlier talk before Facebook filed its IPO registration papers that perhaps it would take a page from Google and seek an unconventional IPO in some respects. Some thought the company might offer some sort of reward to its members by opening access in member-friendly ways. But the conventional wisdom all along has been that Facebook management was much less interested in making a social statement via the IPO process than Google was via its 2004 IPO. Recall that back then, Google insisted that Morgan Stanley run a Dutch auction.

To the relief of Morgan Stanley bankers in Silicon Valley, Facebook has opted for a traditional IPO. But that doesn’t mean there were no surprises in the registration papers.  

For one thing, the deal has been set at $5 billion, which seems low, given the chatter that the bank would raise $10 billion. But Morgan Stanley has no doubt advised its client that it is better to start low and raise the target proceeds over time, to seed the process with good news. In addition, the documents underscored that founder Mark Zuckerberg will own special shares with souped up voting rights, which will be sure to displease shareholder activists. By dint of his special shares, which carry 10 times the voting rights of the public shares, he will control 57 percent of voting power while owning 28 percent of the company.

There was no surprise in the news that Morgan Stanley was tapped as first among equals, which has allowed it to cement its reputation as the leading investment bank for technology firms. But there’s plenty of reason for the bank to worry as there’s a lot that can still go wrong. Any sort of media coverage can cause real problems for the which the bank might suffer. Just look at what media coverage did to Google when it went public. Facebook has experienced the ill-effects of media coverage at sensitive times in the midst of Goldman Sachs’ ill-fated efforts to raise $1.5 billion largely from domestic clients.

Still, while there is little time to relax, the mandate is especially sweet for Michael Grimes, the global co-head of the bank's technology investment banking unit. Grimes joined Morgan Stanley in 1995, during the Frank Quattrone heyday. He slowly worked his way up the food chain, and he stayed put when lots of bankers left Silicon Valley in the wake of the bust. Grimes has benefited from his long-standing ties to the industry. When he worked on Google's IPO in 2004, he worked with Sheryl Sandberg, who is now Facebook’s near-celebrity CFO. That link was no doubt critical in winning the mandate. -Jim