Facebook Picks Morgan Stanley to Lead IPO; Exchange Listing Still Up In The Air

Reports coming out on Wednesday afternoon indicate that Facebook has chosen Morgan Stanley

to lead the largest U.S. IPO since Google

went public in 2004. The company is expected to file documents with regulators as soon as today to raise around $5 billion, although that amount could go up. The other banks that will be participating in the much anticipated public offering are Goldman Sachs

, J.P. Morgan Chase

, Barclays

, and Bank of America

. Market observers say that being chosen as the lead underwriter in the Facebook IPO could catapult Morgan Stanley to the top of the U.S. IPO league table for the third year in a row. Bloomberg quoted Jack Ablin, who helps oversee $55 billion as chief investment officer at Harris Private Bank, as saying “This means a huge windfall for them. The fact that they have led so many high-profile social media deals in the last year is proof positive that Morgan Stanley is most likely to be able to get this deal done.” Ablin added that investment banks stand to earn as much as $500 million in deal fees, depending on Facebook's ultimate valuation - which could be in the $100 billion range. Morgan Stanley's work leading other high profile internet IPOs last year such as Groupon

and Zynga

may have helped the firm secure the lead underwriting position in Facebook's IPO. “Morgan Stanley was able to leverage its dominance among Internet companies going public,” said Anupam Palit, head of research at GreenCrest Capital Management LLC. Facebook will trade under the ticker symbol FB, but it is unclear which exchange, the NYSE or Nasdaq, the company will be listed on. The competition between NYSE Euronext

and Nasdaq OMX

to land Facebook is intense - winning would mean more fees, along with a boost in trading revenue as well as prestige. On the surface, it would appear as if Nasdaq has an advantage in vying for the Facebook listing as most of the world's major technology stocks such as Apple

, Google

and Amazon

are listed on that exchange. The NYSE, however, has made inroads with young tech companies, garnering LinkedIn

and Pandora Media

in two high profile IPOs last year. According to William Hambrecht, who is chairman and founder of San Francisco-based investment bank WR Hambrecht & CO., and was quoted by Bloomberg, a company's decision on which exchange to list their public offering is largely based on promotion. “It usually comes down to who's willing to put the most promotional money out,” Hambrecht said in a phone interview. “You pay for advertising and that type of thing. There's always a lot of advertising around the offering and listing and that's about the only way they compete from a cash point of view. They both do it.” While Nasdaq has traditionally dominated the tech arena, the NYSE holds an advantage in terms of the overall IPO market. Last year, NYSE Euronext (

) won 56% of U.S. IPOs and has claimed more than half of the market since 2008. Going back to 2001, NYSE Euronext has accounted for 74% of IPO proceeds, according to data from Ipreo Holding LLC. Nevertheless, observers believe that if Nasdaq fails to woo Facebook, it would be a major disappointment because of its track record with internet and tech companies. Jamie Selway, head of liquidity management at Investment Technology Group told Bloomberg, “The Intels, Microsofts and Apples all IPO'd on Nasdaq and stayed with Nasdaq. By those lights, Facebook going to NYSE versus Nasdaq would be a hit,” he said. “Because of the expectation that Nasdaq would get Facebook, maybe Nasdaq has got more to lose.” From a revenue perspective, luring Facebook would hardly be a windfall, but from a branding perspective it is a very big deal. According to Bloomberg, NYSE Euronext charges listing companies with an initial fee of $125,000 to $250,000 and annual payments between $38,000 to $500,000. Nasdaq OMX charges an initial listing fee of $35,000 to $99,500 and an annual fee between $35,000 to $99,500. Given these miniscule sums, it is a safe bet that Facebook will not be looking very hard at fees when choosing an exchange. Rather, it will all come down to which exchange Facebook feels most comfortable branding with - do they want to position themselves among legendary blue-chip, American companies such as Coca-Cola

, McDonald's

and Wal-Mart

, which trade at the Big Board, or join the tech high-fliers like Google (

) and Apple (

) at Nasdaq?