UPDATE 5-Facebooks Zuckerberg to keep iron grip after IPO

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* Largest Silicon Valley IPO ignites investor, media frenzy
* Morgan Stanley, Goldman, JPMorgan leads
* Zuckerberg compares social media with printing press, TV
* Analysts see IPO raising as much as $10 billion
* Zuckerberg to have almost total control over company

By Alexei Oreskovic and Sarah McBride
SAN FRANCISCO, Feb 1 (Reuters) - Facebook unveiled
plans for the biggest ever Internet IPO that could raise as much
as $10 billion, but made it clear CEO Mark Zuckerberg will
exercise almost complete control over the company, leaving
investors with little say.
The Harvard dropout, who launched the social networking
phenomenon from his dorm room, will control 56.9 percent of the
voting shares in a company expected to be valued at up to $100
billion when it goes public. Facebook says it has 845 million
active monthly users.
Wednesday's long-awaited filing kicks off a process that
will culminate in Silicon Valley's biggest coming-out party
since the heyday of the dotcom boom and bust.
In its filing Facebook says it is seeking to raise $5
billion, but that is a figure used to calculate registration
fees among others and analysts estimate it could tap investors
for $10 billion.
That would value the company at $100 billion, dwarfing
storied tech giants such as Hewlett Packard Co, while validating
the explosive growth worldwide of social media as communication
and entertainment.
Zuckerberg's economic control of about 28 percent of the
shares would be worth $28 billion at a $100 billion valuation,
ranking him as the fourth-richest American.
The 27-year-old's ownership position means Facebook, a
company dissected in 2010's Oscar-winning "The Social Network",
will not need to appoint a majority of independent directors or
set up board committees to oversee compensation and other
The company's ownership structure and bylaws go against
shareholder-friendly corporate governance practices put in place
in the United States after years of investor activism.
As Facebook states in its prospectus, Zuckerberg will
"control all matters submitted to stockholders for vote, as well
as the overall management and direction of our company."
Zuckerberg struck deals with several Facebook investors that
granted him voting rights over their shares in all or most
situations. Those included Yuri Milner's DST Global, venture
capital firm The Founders Fund, and entities affiliated with
Technology Crossover Ventures, the IPO filing shows.
Google Inc's Sergey Brin and Larry Page retained
control of the search giant through similar arrangements and the
Sulzbergers did much the same at the New York Times.
"Zuckerberg, at the time, probably had his choice of
investors," said Steven Kaplan, a professor at University of
Chicago's Booth School of Business, who researches venture
capital and corporate governance. "He basically had the ability
to say 'my way or the highway.'"
"The downside of doing this is that the value of Facebook
may be slightly lower than it would be if he were not retaining
Facebook could make its market debut in the middle of the
year based on the usual timetable of IPOs.
Its IPO prospectus shows that Facebook generated $3.71
billion in revenue and made $1 billion in net profit last year,
up 65 percent from the $606 million it made in 2010.
"We often talk about inventions like the printing
press and the television," Zuckerberg said in a letter
accompanying the documents. "Today, our society has reached
another tipping point."
"The scale of the technology and infrastructure that must be
built is unprecedented."
Facebook appointed Morgan Stanley, Goldman Sachs
and JPMorgan as its lead underwriters. Other
bookrunners include Bank of America Merrill Lynch,
Barclays Capital and Allen & Co.
Zuckerberg agreed to cut his compensation from $1.48 million
last year to $1 effective Jan. 1, 2013, following the example of
Apple founder Steve Jobs.
Facebook's chief operating officer and Zuckerberg's top
lieutenant, Sheryl Sandberg, earned $30.8 million in total
compensation last year.

Facebook's growing popularity has pressured entrenched
Internet companies from Yahoo to Google Inc.
In 2011, the social network overtook Yahoo to become the top
provider of online display ads in the United States by revenue,
industry research firm eMarketer says.
A $10 billion IPO would be the fourth-largest in U.S.
history after Visa Inc, General Motors, and AT&T
Wireless, Thomson Reuters data shows.
The $5 billion figure in Wednesday's prospectus
was an initial, reference figure -- a basis for registration
fees, among other things -- and could change based on investor
The prospectus said 85 percent of Facebook's 2011 revenue
was derived from advertising. Social-gaming company Zynga
, creator of Farmville, accounted for 12 percent of
Facebook's revenue last year.
The IPO will dwarf any recent debuts of Internet companies,
such as Zynga, LinkedIn Corp, Groupon Inc and
Pandora Media Inc.
Their IPOs had mixed receptions. The last debut, from Zynga,
closed 5 percent below its IPO price during its first trading
day in December.
Google raised just shy of $2 billion in 2004, while
Groupon last year tapped $700 million and Zynga $1 billion.

Facebook aims to be more attractive to potential large
advertisers. It has improved its ad targeting capabilities as it
collects user data through new features such as the Timeline,
said George John, founder of Rocket Fuel, a digital marketing
Advertising revenue increased 69 percent in 2011 from 2010,
and its average revenue per ad increased 18 percent.
"As Facebook gathers more and more users' time and data, it
makes sense for advertisers to get more serious about allocating
more budget to Facebook," he said.
In its prospectus, Facebook revealed an effective 2011 tax
rate of 41 percent and warned it could climb in 2012. That rate
surpasses the average corporate rate of 35 percent and far
outstrips industry peers like Apple, which through offshore
businesses pay far less.
Yet in his letter to investors, Zuckerberg stressed
Facebook's "social mission" over the pursuit of profits.
"Facebook was not originally founded to be a company," he
said. "Simply put: we don't build services to make money; we
make money to build better services."
He laid out his vision for a company that remained grounded
in an engineering culture, devoting several paragraphs of his
letter to what he called "The Hacker Way" at Facebook.
Some of Facebook's most successful products - including
Timeline, chat and video - emerged from "hackathons" where
coders gathered to build out prototypes and compare notes,
Zuckerberg wrote.
"Hackers believe that something can always be better, and
that nothing is ever complete," he said. "There's a hacker
mantra that you'll hear a lot around Facebook offices: 'Code
wins arguments.'"

Courtesy: Reuters

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