Explaining Southern California's economy

Will Goldman Sachs lose out on Facebook IPO?

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Facebook founder and CEO Mark Zuckerberg speaks during a news conference at Facebook headquarters on October 6, 2010 in Palo Alto, California.

The long-awaited day will finally arrive next week, when Facebook files for its initial public offering (IPO) later this year. According to the Wall Street Journal, the offering — which will be fairly limited as far as actual stock sold goes — will price the social network at $75-$100 billion. That would make it one of the biggest IPOs of all time. It could actually help California balance its budget.

But there's more!

The Vampire Squid — aka Goldman Sachs — may not get to lead the IPO. the WSJ reports that Morgan Stanley, Goldman's main Wall Street rival, will get the plumb role. 

Let's not sugar-coat it: This would be humiliating for Goldman, which has been angling to lead Facebook's IPO ever since it set up a private market in Facebook shares in 2011 (and likely before that). It would also be costly. While Goldman will certainly participate, it won't get the millions in fees it was probably expecting, and definitely lobbying for.

So how does this process work? It seems complex but it really isn't. Facebook will file with the Securities and Exchange Commission (SEC), get approved, and name the consortium of banks it's chosen to run the IPO. Let's say it's Morgan and Goldman, with Morgan in the lead. These banks will then arrange for client investors to buy the stock with it begins trading — the true public isn't in on the action yet. Critically, the banks will determine where to price the stock. On opening day, Facebook will get its money — probably something like $10 billion — and the stock will commence trading, most likely on Nasdaq, the electronic exchange. The banks that led the IPO will get their gigantic fees. And all those people who've been donating their content to Facebook for free will get a chance to buy a chunk of company.

And then...we'll see. LinkedIn had a strong IPO last year. But the gamemaker Zygna and the online coupon service Groupon have struggled. Facebook is obviously expected to a whole 'nuther ball game. Hundreds of thousands of users make it a major threat to Google and even Microsoft.

That said, Facebook could just be this generation's Yahoo — a network that organizes information on the Web, information of a highly personal nature. Advertisers could be extremely interested in this. But a big part of Facebook's premise is that it's exclusive (although it's getting less excluside every day). That will have to change as it tries to sell its many users to advertisers and put ads in front of those many users. This last piece is what's starting to annoy some longtime Facebookers: enough with the distractions, already. I just want to see the baby pictures!

Regardless, this filing is going to be huge. I'll be digging into it as soon as it becomes available. We might not get any revelations. But then again, we might get some...revelations!

[My old CBS News colleague Erik Sherman dices and slices a few of those possible revelations.]

Follow Matthew DeBord and the DeBord Report on Twitter.

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