RSUs- Unintended Risk in a Post-IPO world? (Facebook?) (ECE Memerb participation is requested)
The June 3, 2012 article, "Millions More Facebook Shares Coming Soon" discussed the end of the post-IPO lock-up and the Billions (they claim almost 2 billion) new shares that will be put on the market. While the article doesn't explicitly mention Restricted Stock Units, its hard to avoid the potential unintended consequence of the use of these instruments.
Many Facebook participants have RSUs that are "double-trigger" vested. They were designed to have both a time element and an additional trigger that would prevent any vesting until the 180 lock-up is complete. Unlike stock options, RSUs automatically get released and issued. This means that every single share that is already time-vested and waiting for the post-IPO trigger will hit the market on the same day.
Even the most successful and aggressive IPO of companies that paid mainly in stock options did not have 100% exercise of vested shares on the date the IPO ended. This unique circumstance is fairly new, in conjunction with the growth of RSU usage.
Not sure what will happen when all those shares hit the market.
- Have investors already factored in the cost of these release?
- Will investors use the release as an excuse to depress the stock price, and perhaps make quick gains on the rebound?
- Will Facebook stock recover and soar over the next several months creating a market that is desperate for more shares?
I would love to hear your opinions.
Dan
| Topic | Replies | Likes | Views | Participants | Last Reply |
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| IRS Guidance on Stock Options & RSU at Private Companies | 0 | 0 | 472 | ||
| New Tax Treatment for Stock Grants in Private Companies | 0 | 0 | 810 | ||
| Legislative Update: Senate Considering Tax Change For Options And RSUs In Pre-IPO Companies | 0 | 0 | 693 |
I don't know how many employees would be selling stock at vesting considering they would expect the price to go higher, unless they have immediate cash needs, plans for a big purchase, or want to diversify.
Facebook intends to net-settle the shares the RSUs at vesting, instead of leaving employees to sell shares for the taxes they owe. This would be less dilution than a cashless exercise of options. To come up with the cash needed to meet its withholding obligations and remit the funds to the IRS, the company plans to sell stock near the settlement date in an amount that is roughly equivalent to the number of shares of common stock that it withholds for taxes (see page 21 of its registration statement). This could be a bigger number than shares sold on the vesting date.
myStockOptions.com has two blogs about Stock Compensation at Facebook that looks at various issues.
See:
1) Stock Compensation At Facebook: What Facebook's SEC Registration Statement Reveals
2) Million-Dollar Question: A Week After The IPO, What's The Latest On Facebook's Stock Comp?