Facebook takes typical IPO route for its stock market debut

Facebook Inc. is in a quiet period after it filed paperwork on Feb. 1 with the U.S. Securities and Exchange Commission (SEC) to raise $5 billion in an initial public offering (IPO). Federal rules limit what company executives can say in public after companies file form S-1 to register their securities with the (SEC).

The social networking site is just beginning a months-long effort that involves appeasing regulators, wooing investors, and dealing with endless amounts of paperwork before starting its stock market debut. Facebook will follow a familiar IPO pattern, according to SmartInMoney.

Going public using a typical IPO route, Facebook is likely will go through the following course of actions. (Read more detail “Facebook IPO Process Roadmap” at SmartInMoney.com)

• Facebook’s S-1 filing goes the Division of Corporation Finance and the desks of a lawyer and an accountant who specialize in the industry. These staffers will go through the document page by page review. They bring their recommendations to a more senior lawyer and accountant who complete the SEC’s first comment letter.

• The SEC may challenge various aspects of the filing. The regulators may questions about how companies track and count their users. The SEC also scrutinize corporate governance and accounting policies.

• Once the SEC completes its comment letter—usually within 30 days of the filing—it will send it to Facebook’s CEO with a copy going to Facebook’s lead outside counsel.

• Facebook IPO team, including banks and legal counsel, convenes to respond to the SEC queries. Usually IPO teams set up shop at the offices of a financial printer to prepare deal documents. Facebook may push back on some SEC requests, hoping to shield confidential information. Still, the SEC has the final word, so a Facebook might have to cave and put something in the document that you prefer not to.

• While Facebook and its banks conduct their dialogue with the SEC, they will also start creating a slideshow and marketing materials for the roadshow,

• Roadshows typically kick off at the lead bank’s offices, where the company’s CEO revs up the bank’s sales force. That’s followed by a series of hour-long, one-on-one meetings with institutional investors, and group lunches for smaller investors.

• Once the roadshow starts, all the banks participating in the offering open their order books so clients can tell them how much stock they want to buy and at what price. In the case of Facebook, where demand is expected to far outstrip supply, the problem for the banks won’t be finding enough customers but allocating shares in a way that will keep their best, revenue-generating clients happy.

• Immediately after the final roadshow session ends, bankers and company executives sit down to set a price for the stock, which starts trading the next day. Along with raising money, company wants investors who won’t flip the stock. It would love to have the stock trade up on the first day or days and then stay at that level. The financial printer drops the pricing into the final revised prospectus and uploads the documents to the SEC.

• That same night the company signs underwriting agreements with its banks that it has been negotiating over the previous months. The banks buy the stock before turning around and selling it to clients. Banks would be paid fees; these days 5 percent is typical. Because the Facebook deal is so large, bankers will collect fees of lower percent, but still at handsome amount that could be at least $50 million, a huge payday for Wall Street.

• The next morning, the company CEO is expected to ring the opening bell on stock market to celebrate Facebook’s debut stock exchange. The company chose "FB" as its ticker symbol but hasn't decided whether it will trade on the New York Stock Exchange or Nasdaq Stock Market.

• After the IPO, Facebook has to prove to its new public shareholders that the company is good stock market investment.