Meta has agreed a deal with chief executive Mark Zuckerberg designed to keep him in California despite a proposed state tax on billionaires. Zuckerberg, whose wealth exceeds $200bn, negotiated the arrangement with a special committee of Meta after what the company described in a Wednesday financial disclosure as "robust" and "at several points, contentious" negotiations. The measure would impose a one-time 5% tax on residents with a net worth of more than $1bn, a move that would likely cost Zuckerberg around $10bn in additional state taxes.
Zuckerberg told Meta's board last month that he was considering relocating his primary residence from California and potentially selling his properties in the state. His main homes in California are in Palo Alto and Lake Tahoe. He warned the board that such a move "would be public and inevitably noted and commented upon by company employees" and would "raise questions for management of the company going forward". In response, Meta created a new type of stock through what is known as a stock split, announced on Wednesday, and agreed to give Zuckerberg more shares, more frequently, with the ability to sell on a quarterly basis. The arrangement, called the "Founder Alignment Agreement", will last eight years as long as Zuckerberg remains a California resident and does not change his level of control over Meta.
Meta justified the deal by pointing to the company's shift towards artificial intelligence development, describing the arrangement as "critically important" given "the dramatic and unprecedented transformation taking place in the tech industry and global economy related to artificial intelligence". The company plans to spend as much as $145bn this year on AI projects and intends to increase spending further. Meta's chief financial officer, Susan Li, said on Wednesday that another benefit of the stock split would be to give the company additional ways to finance future AI spending. California is home to most of the US's technology giants and has around 225 billionaires resident in the state, according to campaign group Americans for Tax Fairness.
The scale of Meta's AI spending appears to have concerned investors. Meta's shares fell more than 7% on Thursday, wiping more than $100bn off the company's market capitalisation. The company posted negative cash flow for the first time since going public 14 years ago, indicating it is now spending more money than it brings in. Major technology companies are estimated to spend $1 trillion this year alone on AI development and related infrastructure such as data centres.
For UK investors in Meta, the share price decline represents a significant drop in the value of their holdings, though the deal itself does not directly affect international shareholders.