May 3, 2012 7:20pm EST – PrivCo’s analysis of privately-held Facebook, Inc.’s revised pre-road show prospectus concludes that Mark Zuckerberg could gain $142 million in net proceeds from shares sold during the May 18th IPO.

The PrivCo Analysis on Facebook’s Prospectus and Zuckerberg’s Net Proceeds are as Follows:

What Zuckerberg Stands to Pocket

  • Facebook’s revised prospectus states that Zuckerberg is exercising 60 million non-qualified stock options at the presumed IPO fair market value $35/share (high-end of the initial range) for a taxable value of $2.1B.
  • A $903M total tax liability is triggered upon Zuckerberg's exercising of his taxable stock options (using a combined 43% federal and California state tax rate).
  • Zuckerberg will sell 30.2 million Class B Common Shares for a PrivCo-assumed $35/share to finance the tax liability due at the time of the IPO.
  • From the sale, Zuckerberg will receive pre-tax proceeds of $1.045B after a 1.1% underwriting fee.
  • At $35/share and selling a total of 30.2 million shares in the IPO, Zuckerberg’s net cash proceeds retained after the $903M tax are $142M cash in Zuckerberg's pocket upon IPO.

What the IRS and California Stand to Gain

  • Zuckerberg must pay a PrivCo-estimated 43% combined state and federal tax rate on the $2.1B for a total tax payment of $903M incurred at the IPO date. Zuckerberg is selling off the 30.2 million shares to finance this $903M tax liability while still pocketing $142 million in cash after taxes.
  • PrivCo’s assumed total tax of 43% is derived from the maximum federal tax of 36% and the maximum California tax of 9.3% less partial federal deductions for state taxes paid.   
  • At the aforementioned tax rates and proceeds, the IRS (36% less the state deduction) stands to receive a windfall tax payment of $714M from Zuckerberg while the state of California (9%) will receive $189M in state taxes related to Zuckerberg’s Facebook option exercise in connection with the IPO.
  • Mark Zuckerberg still retains over 400 million Facebook shares expected to be worth over $15B after the IPO. Mark Zuckerberg is selling less than 10% of his shares in the IPO.

"According to our calculations, Mark Zuckerberg will be paying an estimated $189 million payment to the State of California this year as a result of the Facebook IPO, expected to be completed this month. The funds are badly needed as California continues to suffer from budget deficits, and could not have come at a better time for the state," says PrivCo Founder & CEO Sam Hamadeh in a statement.

Hamadeh, also an attorney and corporate tax expert, adds, "After selling shareholders other than Zuckerberg are included, the totality of the windfall to the State of California from state residents selling stock in the IPO will be well into the hundreds of millions of dollars...and that's just for starters. More taxes will come due as more shares are sold beginning in December and well into 2013 after the traditional 180-day post-IPO 'lock-up' period expires and employees can sell even more shares, resulting in new capital gains taxes to California - and the IRS - with each new stock sale."