Shareholders Decry Facebook Power Grab

     (CN) – Several Facebook shareholders have filed class actions contending the company’s plan to issue a new class of non-voting stock is nothing more than an attempt to further entrench and enrich founder Mark Zuckerberg.
     On April 27, Facebook filed a proxy statement with the Securities and Exchange Commission proposing to amend the company’s bylaws to allow for the issuance Class C non-voting capital stock, which would then be paid as a dividend to the Class A and Class B common stockholders.
     According to the Proxy Statement, if the dividend is declared and paid by the Facebook board of directors, each shareholder will receive two shares of non-voting Class C capital stock for each Class A and B common share, reflecting a three-for-one stock split.
     According to the first of four shareholder class actions filed in Delaware’s Chancery Court since the plan was revealed, the “distribution of non-voting stock will allow Facebook to purchase other companies or issue stock to employees without diluting [Mark] Zuckerberg’s voting power or diminishing his iron-clad grip over the Company management and operations.”
     Zuckerberg has admitted, the first shareholder complaint says, “that the Class C issuance will (and is intended to) entrench him in power, and insulate him from having to pay attention to the views of the stockholders who own the vast majority of the shareholder equity.”
     The issuance of the Class C stock will also enable Zuckerberg “to retain power, while selling off large amounts of his stock holdings, and reaping billions of dollars in proceeds,” say the shareholders.
     Also, the vote for reclassification is assured, as Zuckerberg owns over sixty percent of the voting stock, say the complaints.
     Holders of Facebook Class B shares have the right to vote ten votes per share while Class A common stock holders have only one vote per share. Class A common stock is currently the only publicly-traded Facebook stock.
     A special committee comprised of Facebook board members reviewed and approved the reclassification, but, according to the shareholders, they “did not bargain hard with the Founder to obtain anything of meaningful value in exchange for the extraordinarily valuable benefit that is being bestowed upon them.”
     Most importantly, say the shareholders, the special committee failed to “provide for any compensation for the Class A shareholders whose investments will be adversely affected by having their holdings cleaved into voting and non-voting shares, without their consent or approval.”
     This reclassification and potential dividend, the shareholders continue, “will inject an element of uncertainty into what should be a blue-chip investment made by Facebook’s stockholders. For example, Class C shares will likely trade at a discount to Class A shares, or the market for these shares may not fully develop, creating liquidity issues for the Company’s stockholders.”
     “The Director Defendants have a fiduciary duty to act in the best interests of Facebook’s shareholders, and to treat them with loyalty, care and candor. Unfortunately, the Director Defendants failed to live up to their fiduciary obligations, agreeing to a Reclassification of the Company with benefits the Founders to the detriment to Plaintiff and the Class of Facebook shareholders,” the shareholders maintain.
     The plaintiffs seek to enjoin the Reclassification, or, in the event of consummation, they seek to recover damages for breaches of fiduciary duty by the director defendants.

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