What was supposed to be a joyous occasion has transformed into a multi-day embarrassment for BuzzFeed—and a source of extreme rage for a slew of former employees—as the one-time digital media darling’s circuitous route to going public has ended this week with former employees who believed in the company enough to buy options when they left unable to sell as the share price has dropped further and further south.
The share price initially opened at $10.95 and hit a high of $14.77 soon after trading started on Monday before falling quickly and precipitously, reaching a low of $5.56. (It currently hovers just above six dollars.) In the interim, former employees have dealt with a mess of miscommunication, paperwork, and phone calls as they watched their money slip away.
The question is who to blame, and fingers have been pointing every which way. Publicly and behind the scenes, former BuzzFeed employees have focused their scorn on BuzzFeed management. “It’s been almost a week, and myself and former BuzzFeed employees have not been able to trade the shares we have earned and paid for because of a fuck up by management,” one former employee tweeted Thursday.
Internally, Peretti admitted his own frustration, but pointed the blame at Continental, the third-party stock transfer company that is managing this transaction. In Slack messages reviewed by Motherboard, Peretti wrote this week that BuzzFeed was required to use a third-party agent, but that he had expected Continental to “move more quickly” than it had.
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“All the problems seem to be with the transfer agent,” Peretti wrote in an understandably grammatically-troubled Slack message. “They were came highly recommended to us but everything they touch has gone very slowly. We are marshalling all our contacts to push them to expedite conversions.”
“We expected the transfer agent to facilitate these conversions very quickly and are very upset with them and pushing them hard to fix the problem,” he added a few minutes later.
The crux of the issue is this: At least some former employees who believed in the future of the company enough to exercise their options have found themselves unable to sell, through no clear fault of their own. These people have what are known as Class B shares—handed out earlier in the company’s history, according to Peretti’s Slacks—and they have come to hold a frustrated but justifiable solidarity with one another. (“class B gang rise up,” BuzzFeed reporter Rosie Gray, who left the company for the Atlantic for a few intervening years, tweeted Wednesday.)
Current employees who did not have to exercise options have had an easier time. Notably, the company has in the past extended the exercising timeline for the options of certain former employees as well. This includes some who left on good terms and were offered an extension for one of any number of reasons, according to a person familiar with the company. It also includes the family of the late Michael Hastings. Another group is in here too though: Some people who were fired and settled, according to the same person.
BuzzFeed converted Peretti and other executives’ Class B shares to Class A last week, according to SEC filings, but a company spokesperson said that was a legally required part of the SPAC transaction that gave BuzzFeed executives control of the public company. The spokesperson strongly denied it had anything to do with this whole disaster, and noted that executives can’t trade for at least a half a year.
In the Slack messages, Peretti denied "speculation" that "big investors" were able to "trade ahead of employees," saying they were "locked up and not able to trade." These include executives and associated venture capitalists, who are unable to sell for half a year.
The process has been a bit of a mess almost from the jump. In June, BuzzFeed announced its plans to go public through a merger with a special merger acquisition company, or SPAC, a decision that initially led to squabbling between the company and its largest investor, NBCUniversal, which didn’t like the idea as proposed. Peretti wrote in Slacks this week that the company’s “tight timeline before going public” also led it to “freeze the ability to exercise options” in order to “get a final share count” and “get shares transferred.”
The timeline is convoluted, but Axios did a good job summarizing it on Friday morning, reporting that the Tuesday before Thanksgiving, BuzzFeed sent an email saying “you don’t have to do anything” except wait for instruction. The next day, Continental requested documentation from employees. Then, last Wednesday, BuzzFeed wrote the steps down in an email obtained by Motherboard.
The email had two issues: It added, just days before trading started, that one step (the transfer of stock) would take “3-5 business days.” More critically, it didn’t include a necessary instruction for holders of Class B shares to convert to Class A.
(Other things were going haywire too. That same week, the Wall Street Journal reported that SPAC investors reportedly pulled out 94 percent of the $287.5 million they had handed to the shell company after finding out the terms of the deal with BuzzFeed.)
By the time the former employees found out about the extra step, the stock had already dropped. Some reportedly found out Monday night through Continental. Others through an email from BuzzFeed on Tuesday evening, which Motherboard reviewed.
The email, first reported by Insider, was titled “Equity Update: Class B Shares” and informed people with Class B shares that the company had only just learned that “holders of Class B shares would have to take additional steps to convert their shares to Class A, before they could be transferred for sale, and that Continental’s conversion process could take multiple days. We wish this information had been provided in Continental’s initial Letters of Transmittal (in addition to the necessary paperwork for you to complete).”
“We understand and sympathize with your frustration with this process,” the email continued. “In the past 24 hours we have had many conversations with Continental and they’ve assured us they are completing this process as quickly as possible. We will keep you updated if we receive any additional information from Continental.”
If you got a headache reading all that, imagine how the former employees feel! By then, the anger had already reached Twitter, where it has remained since then. The Washington Post’s Molly Hensley-Clancy wrote that the company had “made it virtually impossible for former employees to trade their shares on the first day.”
“BuzzFeed is now just fucking with former employees,” former BuzzFeed executive Keith Hernandez said.
In Slack messages trying to explain the disaster, Peretti said people holding Class B shares needed to manually convert their shares to Class A “for legal reasons.”
“[Y]ou need to consent to the conversion and the company can’t just do it for you,” Peretti wrote. “We’d be taking away rights (albeit rights most people don’t care about) if we just switched the shares on your behalf.”
A number of people received a note from Continental that their options had been converted from Class B to Class A on Thursday, but were still unable to trade by the Friday close of markets, according to a former employee.
SPACs have faced increasing scrutiny lately as a number of the mergers have fallen flat in the public markets. The process sometimes involves less due diligence and, unlike in the traditional IPO process, allows companies to pump themselves through forward-looking projections. Just this week, SEC Chair Gary Gensler said he hoped to create tougher rules for the SPAC process that would level the field between that and the traditional IPO route. You can understand why!
Continental has appeared to be struggling as well. The current employee said Continental made other errors throughout the process, including misspelling people’s names. Insider reported earlier this week that Continental operators had told multiple ex-employees they had been dealing with an unusually large number of BuzzFeed-related calls.
“brb just wrapping up my dozen daily calls to the Continental Stock Transfer and Trust Company,” Gray tweeted Wednesday.
Motherboard’s own emails and messages to Continental went unreturned. When Motherboard reached out using the phone number on the company’s website, we were transferred to someone who told us that the company did not have a media relations team.
When Motherboard asked to speak with leadership in that case, the person responded, “You can look at our website,” then told us he needed to go.