The following are extracts of two articles from BBC News. Facebook raises share price range after strong

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The following are extracts of two articles from BBC News.

Facebook raises share price range after strong demand. 15 May 2012

Facebook, founded 2004, has raised the price at which it hopes to sell its shares from $28-$35 to

$34-$38, potentially putting its total value above $100bn. The company said strong demand had pushed up the price. Trading in the shares is expected to begin on Friday.

A valuation at this level would make it worth more than the US corporate giants Disney, Ford and Kraft Foods. The eight-year-old social network has 900 million users worldwide and made a profit of $1bn last year. If investors buy the shares at the mid-point of $36, Facebook would raise

$12.1bn through its planned sale of 337.4 million shares.

The Facebook IPO is a bet on the shape of our digital future. Facebook founder and chief executive Mark Zuckerberg will remain in control of the company even after the flotation, controlling more than 57.3% of the voting power through shares he holds and through voting agreements with other shareholders.

The intense interest in the share issue comes despite doubts about the company’s ability to make steady profits from social networking. Although Facebook makes money, profits are currently just 1% of the market value implied by the forthcoming flotation. Last month, Facebook reported its first drop in revenue between quarters for two years. It has sought to allay those concerns, pointing to mobile as an area for growth that the company will invest heavily in. Facebook is in the process of buying the fast-growing mobile phone photo sharing app Instagram for $1bn, its largest purchase ever.

Facebook boosts number of shares on offer by 25% 16 May 2012

Facebook says it will sell 25% more shares than first planned in its flotation in response to strong demand. The move comes one day after the social networking giant said it would raise the price of the shares by 21% to between $34-$38 a share. It also comes despite doubts about the profitability of the site, which is largely used for social updates.

Facebook will add about 84 million shares to its initial public share offering (IPO) and will now sell about 421 million shares, up from 337 million, raising $18bn. This is still only a small percentage of the entire company, and implies Facebook’s full market value is around $100bn, similar to that of internet shopping giant Amazon.

The extra allotment of shares and the raising of the target price were both moves that were anticipated by analysts. The actual price of the shares is expected to be revealed on Thursday with open market trading pencilled in to begin on Friday. If all the shares are sold at the new higher price, the IPO would be the third-largest initial share sale in US history, after the financial giant Visa and General Motors. The company could add even more shares to the sale as there are more than 60 million additional shares that could be sold to cover excess demand.

The new shareholders will not have much say in how the business is run. The shares on offer are “A” shares, which carry one vote per share, as is normal. But the current owners’ shares are “B” shares, which carry 10 votes each. They will control more than 96% of the

votes after the public listing, with founder Mark Zuckerberg holding just under 56% of the voting power of the company.

Required

Based on the articles, what is the approach to manage oversubscription of shares selected by Facebook? What is the difference with the other approaches? Illustrate with examples.