Regulatory documents filed with the U.S. Securities and Exchange Commission at the end of August have revealed that the money-management unit of Morgan Stanley (NYSE:MS), the underwriter that took Facebook (NASDAQ:FB) public at a record high market value, bought more than 2 percent of the California-based social network’s $16 billion offering.
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Morgan Stanley Investment Management purchased 10 million shares at the $38 IPO price, investing about $380 million in the company. That included 1.53 million shares bought by the Morgan Stanley Institutional Fund Growth Portfolio and 2.81 million shares acquired by the Morgan Stanley Focus Growth Fund, its stake representing the fund’s third-largest holding at a combined 7.7 percent of the portfolio.
Since the purchase, Facebook stock has fallen 42 percent, which erased $39 billion in market capitalization and ranked the stock the worst-performing large technology IPO, according to data compiled by Bloomberg. The stock’s decline left the bank’s fund investors behind on their investment.
According to recent regulatory filings, the bank is the sixth-largest shareholder in Facebook, behind Accel Partners, Goldman Sachs (NYSE:GS), and Baillie Gifford. Mutual funds managed by JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) also disclosed buying Facebook stock, purchasing 953,600 and 967,328 shares respectively, through the initial offering. Goldman Sachs reported its fund purchased 694,674 shares at the same time.
Facebook was not the first e-commerce and social-networking IPO in which the bank was a lead or co-lead underwriter; Morgan Stanley Investment Management invested $22.5 million in LinkedIn’s (NYSE:LNKD) IPO in May 2011, $50 million in Groupon (NASDAQ:GRPN), and $100 million in San Francisco-based online game developer Zynga (NASDAQ:GRPN). Since the companies went public, shares in Zynga have declined 69 percent and shares of Groupon have dropped by 77 percent. LinkedIn, by comparison, has more than doubled in value.
After Facebook announced May 9 that growth in advertising had failed to match user growth, analysts at Morgan Stanley and several other banks that also underwrote the deal, cut their earnings estimates. According to a recent shareholder report, the Morgan Stanley Focus Growth fund’s holdings declined to 2.1 million shares as of June 30, down from the 2.81 million shares purchased in the offering, and the stake held Morgan Stanley Institutional Fund’s Growth Portfolio declined to 889,238 shares from 1.53 million.
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