Zynga (NASDAQ:ZNGA), which is the leading social gaming site, has filed for a secondary offering for $400 million. The underwriters include Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS).
It was only back in mid-December that�Zynga pulled off its high-profile IPO, which raised $1 billion. While the offering got off to a shaky start, the stock is actually now up 36% from its IPO price of $10 per share.
The secondary offering isn’t meant to raise capital for the company. Instead, it will be a way for Zynga�s existing shareholders — such as venture capitalists — to cash out some of their holdings.
The secondary offering should also be an effective way to deal with the “lockup.” This is a contract that forbids insiders from selling their shares, usually for six months after an IPO. But when the lockup expires, it often unleashes lots of selling pressure, which can tank a stock. This happened last year when the lockup for LinkedIn (NYSE:LNKD) expired.
So, with a secondary offering, Zynga can better manage the�process of distributing its shares. Besides, the sellers in the secondary offering will likely be required to increase their lockup periods.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of �The Complete M&A Handbook”, �All About Short Selling� and �All About Commodities.� Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
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