A power struggle between Facebook and investors just ended with Facebook dropping plans to issue non-voting shares (FB)

pulse

September 22, 2017 7:46 PM

Facebook has dropped its controversial plan to create a class of non-voting shares in the face of a class action lawsuit brought by investors.

Facebook has dropped plans to create a new class of non-voting shares that would have protected CEO Mark Zuckerberg's control of the company even as he sells 99% of his shares.

The surprise announcement on Friday came just days before a trial seeking to invalidate the plan was scheduled to begin with Zuckerberg's testimony in Delaware court.

The decision means that Zuckerberg will stay in control of the company he founded for the foreseeable future and still be able to sell off millions of his shares to fund his philanthropic efforts, he said on Friday.

"Over the past year and a half, Facebook's business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more," Zuckerberg said in a Facebook post. "As a result, I've asked our board to withdraw the proposal to reclassify our stock -- and the board has agreed."

Facebook's stock price has risen over 50% since the company initially proposed to issue nonvoting shares in April 2016. As a result, Zuckerberg said he plans to accelerate his selling of shares to fund his philanthropic organization, The Chan Zuckerberg Initiative. He plans to sell 35 to 75 million shares over the next 18 months totaling between $6 to $12 billion.

The move to drop the proposed reclassification on the eve of trial means that Zuckerberg and other Facebook insiders will not take the witness stand.

“We're thrilled that Facebook has dropped the reclassification,” Stuart Grant, the lead lawyer representing shareholders in the case, told Business Insider in a statement. “Stopping the issuance of the non-voting C shares is all the relief we were asking for at trial. Today’s move is a total victory for stockholders.”

In a regulatory filing on Friday, Facebook said the decision to drop the plan followed the unanimous recommendation of the board's special committee of independent directors.

“At some point, no matter how well the stock does, he’s going to have to cross that threshold," Grant said.

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