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Facebook and the family business

By Matthew Gwyther

Mark Zuckerberg may not have struck you as a classic family guy: 2.2 kids, mortgage, overweight Labrador, Sunday lunch with his nearest and dearest. But I think he should give the family way a try. I’m not suggesting he should immediately drag himself away from his laptop and nightly session on Farmville and get reproducing with his lovely girlfriend, Priscilla Chan. (It might be an idea to sort out what is likely to be complex pre-nup before heading for the hay.) Let me explain.

Although Facebook recently announced it is filing for an IPO and so will open itself up to partial joint stock ownership, it doesn’t really seem to have any reason to do so. And you really need a sound reason to take this life-altering step. It’s churning out cash quite nicely now – free flow rising from $190 million (€145 million) to $470 million between 2010 and 2011. Its shareholders’ equity has risen from $2.2 billion to $4.9 billion. So why go to the markets?

Facebook should remain a closely held family-style company because that is what suits it. Zuckerberg is famously very keen on control. You don’t have to take every scene in The Social Network as gospel truth to see this. He doesn’t like being pushed around, especially by a pair of oversized Wasp-rowing jocks with bags of family loot and ideas above their station. I doubt if he has ever been that keen on being told what to do. For the last seven years, he has driven the bus and been master of all he surveys.

There are technical reasons why he may have to go public – US law states that once you have more than 500 investors on board an IPO is a must – but there must be ways of getting around this with a few clever lawyers and accountants to help smooth things over. The Silicon Valley guys and gals in their sneakers to whom he has distributed equity over the years could be sorted. In the nicest possible way. He’d get the shares back with some borrowing and run the place as a family business.

The point is that some of the equity will now go to people he doesn’t know, may not agree with over future strategy and may not get on with that well. He’s not exactly Mr Personality when it comes to charm and communication. However lousy the voting rights of those who buy in might look – and they aren’t great - they may well cause him a lot of trouble in years to come. Look at the grief News Corp is currently going through with its shareholders over the Wapping scandal. Rupert may lose family control of Sky’s board. Look at the hideous mess Stelios has got himself in with EasyJet – he cannot get his hands off the Airbus joystick, although he relinquished his ability to pilot the plane years back. The spectacle of him fighting for the controls and captain’s epaulette with chief executive Carolyn McCall is an unedifying one.

Branson and the Zuck have much in common and old beardy loathed being listed. It just did not suit his style to be subjected to the barbed taunts and provocative questioning of a bunch of smartarse city analysts once a quarter. Especially when he likes to keep the true states of his business as cloaked in mystery as he does.

What is really weird about Facebook’s IPO is the fact that Zuckerberg doesn’t know what to do with the cash that it will generate. A great chunk goes immediately to the taxman. And he admits quite baldy that “we’re going public for our employees and our investors”. Doesn’t sound as if his heart is truly in it. He ain’t clicking on Like for this float. This is a frank admission that he’s not going public for himself. I smell trouble ahead. 

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