Investors have been speculating on the massive share dilution of Facebook’s (FB) stock as restriction dates for employees and early investors to sell their holdings have been approaching. The company made several significant moves to address those concerns, perhaps as a gesture to appease investors that were burnt on buying in around the IPO price of $38. Shares of the social network, which sank to a new all-time low yesterday, jumped over 5 percent this morning to as high as $18.68 on the news.
Despite making its debut as a public company just over three months ago, Facebook has now in effect announced what is seen as a share buyback program by Wall Street after it said it will withhold the original plan to sell 101 million shares of stock, the proceeds of which were to be used to pay for $2 billion in taxes. Instead, Facebook will tap into its cash reserves or credit lines to cover the bill.
In addition, CEO Mark Zuckerberg has said he will not sell any more of his stock for at least a year. Other key executives will limit their selling to just enough to cover their taxes. The company also moved up the date in which employees are allowed to sell their stock by two weeks to Oct. 29.
Henry Blodget of Business Insider pointed out that the indirect buyback was essentially paid for when Facebook raised its original IPO price range from $28 and $35 to $34 and $38, essentially raising an additional $1.8 billion.