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Facebook's New Dual Class Structure - Slow Steps to an IPO

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Facebook is slowly inching its way to an IPO.

CEO Marc Zuckerberg has long said that the company wants to stay independent, rather than be acquired, and he wants to stay at its helm.

Just now Facebook confirmed that it's introduced a dual-class structure -- a natural step towards an eventual IPO, and one that will allow Zuckerberg to maintain his leadership of the company. As the company's largest shareholder, Zuckerberg will have true voting control over the company.

Facebook's in no rush to go public, though it'll clearly happen down the line. In May Facebook allowed employees to sell their shares to Digital Sky Technologies to remove pressure from employees to go public in order to make their stake in the company worth something. The company is cash flow positive this year and is generating an estimated $500 m in revenue. I'd guess that it's working to firmly establish its business model, and is waiting for the right time in the markets, so when it does go public its valuation is on the high end -- Microsoft's investment in Facebook in 2007 gave it a $15 billion valuation.

Facebook issued the following statement about why they're issuing two classes of stock and how this doesn't indicate that an IPO is in the works -- for now at least.

"Facebook is a private company so we don't typically share details on stock-related matters. But we did introduce a dual class stock structure because existing shareholders wanted to maintain control over voting on certain issues to help ensure the company can continue to focus on the long-term to build a great business. This revision to the stock structure should not be construed as a signal the company is planning to go public. Facebook has no plans to go public at this time."

The Wall Street Journal broke the news that current shareholders will get Class B stock, with ten times the voting power of Class A shares. If these shares change hands after an IPO, they will have the lesser voting rights of Class A shares. This step is no big surprise -- it's similar to what Google did before its IPO.

Today I interviewed Sheryl Sandberg about the company's big Black Friday retail promotions -- more on that coming in my next blog.

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