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When will Facebook Inc. (FB 2.11%) split its stock again? CEO Mark Zuckerberg already "owes" shareholders a split: Back in April 2016, the company announced a plan to create a new share class that is equivalent, on an economic basis, to a 3-for-1 stock split. More than eight months on, Facebook has yet to implement that plan.
So when will it happen? We could find out very soon.
The history of Facebook.com stock splits
As a private company, Facebook split its stock three times:
|
Facebook Stock Split Date |
Split Ratio |
|---|---|
|
October 2010 |
5-for-1 |
|
October 2007 |
4-for-1 |
|
July 2006 |
4-for-1 |
Data sources: Reuters, Bloomberg.
Since its initial public offering in May 2012, however, Facebook has yet to split its shares.
Why does Facebook want to split its stock?
The only semi-legitimate reason for splitting a stock is to lower the stock price to make the shares more accessible to individual investors. This is the reason Apple invoked when it announced its most recent split, which it completed in June 2014.
Note that I qualified that rationale as semi-legitimate only, because it still comes with its own problems. For a detailed discussion of this topic, read the section titled "Stock Splits and Stock Activity" in Warren Buffett's 1983 letter to Berkshire Hathaway shareholders.
In any event, Apple's stock was trading above $600 when it split, whereas Facebook's all-time high is $133.28. Perhaps not surprisingly, then, Facebook's plan has nothing to do with the stock price and is only equivalent to a stock split. Instead, as noted, it involves the creation of new class of shares. For every share investors own on the record date (which has yet to be set), they will receive two new Class C shares, which will trade under a different ticker symbol.
On an economic basis, the payment of the C shares as a dividend amounts to a 3-for-1 stock split -- the C shares will have the same economic rights as existing A and B shares. However, the C shares will have no voting rights. The point of the operation is to make it easier for Zuckerberg to maintain voting control over the company, all the while making good on his promise to give away 99% of his shares during his lifetime.
How will the stock split affect share price?
The announcement of the plan probably had some sort of an impact on Facebook's share price back in April, but it's impossible to tease it out, since the news was part of the company's announcement of its first-quarter results -- important fundamental information that swamped any impact related to this plan. In fact, the release, which included much better-than-expected earnings per share, was issued after the close on April 27, and shares rose more than 7% the following day.
When the split occurs, the price of Facebook's shares will decline by two-thirds, in line with the split ratio. In other words, investors will end up owning three times as many shares at one-third the price. Finally, we can expect some minor difference in price between the existing shares and the new Class C shares.
Will Facebook split its stock in 2017?
The current plan to split the stock with the creation of an additional class of C shares was announced on April 27, 2016, and shareholders ratified the plan at the company's annual meeting on June 20. However, the board has yet to set a record date for the payment of the Class C stock dividend.
The delay is probably linked to a lawsuit opposing the plan filed by a shareholder in the Delaware Court of Chancery two days after it was announced; the matter is scheduled for trial this month. In June 2013, Google announced that it had settled a similar suit, one day before the trial start date, paving the way for the distribution of its Class C shares, which took place less than 10 months later. I think there is every chance events will play out in a similar manner in this case, and I expect to see Facebook distribute its C shares sometime this year.
