Facebook not worth USD15 billion

08-07-2008

by The Register

Court papers have told the world what it already knows: Facebook is not worth USD15 billion.

That was the value Microsoft slapped on the social networking poster child last October when it forked over USD240 million for a 1.6 percent stake in the company. But according to papers from the recently settled court case between Facebook and Harvard University dating site ConnectU, Facebook believes its common stock is worth only USD3.75 billion.

The founders of ConnectU have accused Facebook CEO Mark Zuckerberg of stealing their idea, and in February, the two companies reached a secret agreement involving cash and stock. But ConnectU later backed out of the deal, claiming it was unenforceable, and Facebook turned back to the courts.

According to case documents, ConnectU argued the deal was bogus in part because Facebook lied about its valuation when the Microsoft pact went through.

"The term sheet and settlement agreement is also unenforceable because it was procured by Facebook's fraud," the court papers say. "Indeed, based on a formal valuation resolution approved by Facebook's board of directors but concealed from ConnectU, the stock portion of the purported agreement is worth only one-quarter of its apparent value based on Facebook's public press releases."

In other words, ConnectU somehow nabbed Facebook's internal valuation of the company's common stock, and this figure was USD3.75 billion, not USD15 billion.

But as The New York Times points out, Microsoft bought preferred stock in Facebook. Preferred shares carry added shareholder rights, and that means they're worth more. So Microsoft has the figure too high. And ConnectU has it too low.

Or maybe they both have it too high. After all, no one really knows what a Facebook IPO would bring. But one thing's for sure: a 1.6 percent stake isn't worth USD240 million. Even if you believe in social networking.

In any event, Judge James Ware has ordered ConnectU to honor its February Facebook settlement.