Late Tuesday, Facebook Inc(NASDAQ:FB) in a regulatory
filing said that will withhold 101 million share of stock owed to employees on
October 25, as part of its measures to stem the slide in the price of its
shares.
The company also said that it would pay the tax bill
associated with the stock grants with its own cash or its cash from its credit
lines.
Extrapolating on this, Business Insider has
interpreted this to mean that the social networking site is about to do a huge
stock buyback at less than half of what it received for its share at the IPO in
May.
Look at the reasoning. "By deciding to withhold
101 million shares of the employee stock grants and pay its tax bill with cash
on the balance sheet, Facebook is effectively buying back those shares and
retiring them. At $19 per share, the tax bill will amount to $1.9 billion, and
the 101 million shares are worth about $1.9 billion. So Facebook will effectively be using $1.9
billion of cash to buy back its own stock."
Now isn't that smart. Companies, the world over,
usually indulge in stock buybacks when the share prices are low.
Can FB Rebound
After The Recent Slump? Find Out Here
The company also said in the filing with the
Securities and Exchange Commission that it plans not to do another stock
offering in the next few months to raise cash to pay the tax bill associated
with the stock grants.
According to Business Insider, the company will not do
open market purchases of its shares like other company. Instead it will retire
the stock that has been withheld from the employees and then give the cash
equivalent of these shares to the government.
"In so doing, it will spend about $2 billion and
modestly reduce its fully diluted share count—to about 2.6 billion from 2.7
billion (which has exactly the same impact as a buyback)."
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