Facebook Inc. (FB) to Conduct Buyback to Pay IRS

Facebook Inc. (NASDAQ:FB) could very well be a very good value at its current $19 price, at least as one valuation expert and NYU finance professor believe. He says the stock is almost down to his price threshold to conduct a “buy” order – $18, which he says would be a 25 percent discount on the actual value of the company.

Investing people always says to buy low and sell high. At this point, if Facebook Inc. (NASDAQ:FB) was selling stock at #38 a share in May, wouldn’t this be a good time to launch a buyback program on the stock? According to the history of stock buyback programs in the last 10 years, the majority of such programs don’t end up well for the company, according to research by Thomon Reuters. But maybe in this case, it might be a good opportunity – and Facebook Inc. (NASDAQ:FB) essentially announced as much in its recent 8-K filing by saying it would pay employee withholding taxes out of cash on hand.

How this would work is that Facebook Inc. (NASDAQ:FB) has 225 million shares of stock as employee compensation due to have its lockout expiration in late October. The plan, the company said in its filing, was to pay the 45-percent withholding out of those shares – and 45 percent of the 225 million shares is 101 million shares, which at the current $19 price would come to $1.92 billion. Rather than do a follow-up offering to pay the tax bill, the company announced in its 8-K document that it would buy the 101 million shares itself and give the proceeds to the IRS to fulfill the withholding tax obligations.

In effect, this become a stock-repurchase plan, which would mean that only 55 percent of the unlocked shares in late October would be released into the market, which may buoy the stock price a bit.

This may be considered an effective use of an expired lockup and available cash to keep to many shares from flooding the market while paying the money the federal government requires. In terms of the “buy low, sell high” mantra, this is the kind of move that would make Warren Buffett of Berkshire Hathaway or most other hedge-fund managers- like Facebook Inc. (NASDAQ:FB) investor Chase Coleman of Tiger Global Management LLC – pretty darn proud.