Zuckerberg wins new shares as he weighs exit over proposed wealth tax

Meta has agreed a new deal with its chief executive, Mark Zuckerberg, to prevent him from leaving California over a proposed state tax on billionaires. The agreement gives Zuckerberg, whose wealth is estimated to exceed $200bn (£149bn), even more shares in the company to make up for the fraction of his fortune he may lose if the tax wins voter approval in November.

The measure would impose a one-time 5% tax on residents with a net worth of more than $1bn. It would likely see the Facebook co-founder pay around $10bn in additional state taxes. He secured the deal with a special committee of Meta after "robust" and, at several points, "contentious" negotiations, according to a financial disclosure on Wednesday.

California is home to most of America's technology giants, and around 225 billionaires reside in the state, according to the campaign group Americans for Tax Fairness. Their wealth, including Zuckerberg's, has ballooned in recent years. His estimated effective tax rate in California was less than 1% each year.

Nevertheless, Zuckerberg told Meta's board last month that he was considering moving his primary residence out of California and even selling his property in the state. His main homes there are in Palo Alto and Lake Tahoe. Such a move "would be public and inevitably noted and commented upon by company employees", he told the board, and would "raise questions for management of the company going forward".

In response, Meta decided to create more shares in the company to give Zuckerberg a way to make up any wealth he may lose through the tax proposal. Through what is known as a stock split announced on Wednesday, Meta created an entirely new type of stock and gave one new share to each existing shareholder. Zuckerberg is one of the company's largest shareholders and famously controls it through the design of his holdings. Under the deal, he will receive more stock, more often, and be able to sell it quarterly, according to the filing. The shares will not change his level of control over Meta, but will allow him to cash in more easily on the company's value. The arrangement appears to be effective even if the one-time tax does not pass, and will run for eight years — as long as Zuckerberg remains a California resident.

Meta called the deal its "Founder Alignment Agreement", saying it was "critically important" to keep him leading the company from California given the "dramatic and unprecedented transformation taking place in the tech industry and global economy related to artificial intelligence". The company alluded to the problems it experienced during the Covid-19 pandemic, when Zuckerberg began working outside the office and mostly from his compound in Kauai, Hawaii. After a surge in hiring, a whistleblower scandal that renewed focus on child safety and a refocus on building the "metaverse", the company began mass layoffs and restructuring. Job cuts have continued this year: headcount is down 15% from a year ago, meaning at least 10,000 workers have been shed.

Meta has since moved away from the metaverse and is more focused on artificial intelligence products and related tools. With Zuckerberg leading efforts to catch up in the AI race, the board said it saw a future of "tremendous market opportunity". Major tech companies are set to spend an estimated $1 trillion this year alone developing AI and the costly infrastructure around it, such as data centres. Meta said on Wednesday that it planned to spend as much as $145bn this year on AI projects, having increased its expected outlay each financial quarter so far.

It is spending so heavily that it posted negative cash flow for the first time since going public 14 years ago, meaning it now spends more than it brings in. Susan Li, the chief financial officer, said another benefit of the stock split would be to give the company more ways to finance future AI spending. The scale of that spending, without a clear new revenue stream, appeared to spook investors on Thursday. Meta's shares fell more than 7%, wiping more than $100bn off its market capitalisation.