Morgan Stanley faces Facebook fallout, limits damage

NEW YORK, Wed Jun 27, 2012 – Morgan Stanley was quick to dismiss suggestions its status as the king of initial public offerings for Silicon Valley was under threat because of the botched Facebook Inc. IPO last month. And that confidence may be warranted.

While Morgan Stanley has been snubbed by some technology companies, the repercussions for the Wall Street investment bank have been limited, according to sources familiar with the situation.

Just a week after the Facebook debut, Ruckus Wireless chose Goldman Sachs Group Inc. over Morgan Stanley as the lead underwriter for its IPO, sources familiar with the matter said.

One of the sources said the company’s decision had nothing to do with the social networking website’s debacle, but a second said Facebook had at least some influence on the decision.

Ruckus, which supplies WiFi products to mobile operators, chose Goldman primarily because it liked the firm’s banker and the pitch, the sources said. Morgan Stanley is now one of the bookrunners on the IPO.

Some companies and rivals have railed against Morgan Stanley’s tendency to monopolize IPOs – a practice that is not uncommon on Wall Street. The bank retained tight control over information, decisions and the allocation of Facebook shares, even though there were 33 bookrunners on the offering, other underwriters have said.

In fact, the bank has long argued it is right to do so, telling clients it offers them “one throat to choke” if something goes wrong, sources familiar with the situation said.

But at least one client, Palo Alto Networks, which has hired Morgan Stanley as its lead bookrunner, is no longer buying into that argument. The security software maker has asked its other underwriters, which include Goldman and Citigroup Inc., to be more active in its IPO, which is planned for later this summer, sources familiar with the company said. That will likely mean having more of a voice in book-building, as well as pricing discussions.