When Facebook announced its first quarter results last week, it also announced that it created a new class of stock.
The non-voting Class C stock proposed would enable Mark Zuckerberg and his wife Priscilla Chan to more easily fund their philanthropic ventures, whilst keeping Zuckerberg himself firmly in control of Facebook.
In response to this, a lawsuit has been raised that says the proposed deal is unfair. The shareholders raising the class action lawsuit said the deal would grant Zuckerberg even more control and that the board committee didn’t do enough "to obtain anything of meaningful value" in return. The lawsuit accuses him of wanting "to retain this power, while selling off large amounts of his stockholdings, and reaping billions of dollars in proceeds".
Filed in the Delaware Court of Chancery, the lawsuit is highly critical of the proposed share restructuring which is described as "effectively a 3-for-1 stock split". The aim is to issue two shares of new Class C shares (which would be traded under a new symbol) for every current Class A and Class B share owned by shareholders. The lawsuit says: "The issuance of the Class C stock will, in effect, have the same effect as a grant to Zuckerberg of billions of dollars in equity, for which he will pay nothing".
Earlier in the week, when revealing its results for Q1 2016, Facebook said:
The 2016 Annual Meeting of Stockholders is due to be held on 20 June, 2016, and at this meeting Facebook stockholders will be given the opportunity to vote on the proposal.
The lawsuit brought against Facebook is comparable to what happened to Google back in 2013 which did nothing to stop the company from going ahead with similar plans.