By navigating our site, you agree to allow us to use cookies, in accordance with our Privacy Policy.

Facebook en route to acquire WhatsApp for $16 Billion

facebook

Facebook from its barrio has entered into a contract to secure WhatsApp, the widespread messaging app, for a total $16 billion in cash and stock, as specified by a filing on Wednesday.

The deal from its quarter is by far what can be rounded off in glaring red as – Facebook’s largest acquisition to date and comes after rumors in late 2012 and early Fiscal 2013 that read- Facebook and Google were vying to buy the messaging service.

Consistent with the filing, Facebook has decided to pay $12 billion in stock and $4 billion in cash for the enterprise. Facebook has also approved to pay an additional $3 billion in restricted stock units to WhatsApp’s founders and employees as a slice of the deal at the offing, which would as developments at hand climaxes, bring the total deal price to approximately $19 billion.

WhatsApp, founded in 2009 by former Yahoo engineers Jan Koum and Brian Acton, is the most popular of a set of mobile messaging apps which some disputed that – posed a threat to Facebook’s business. The app served as an alternative to SMS by letting users send messages for free across smartphone platforms. It presently has more than 450 million people who use the app every day.

“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” Mark Zuckerberg, Facebook’s cofounder and CEO, alleged in a statement. Rhetoricising that – “I’ve known Jan for a long time and I’m excited to partner with him and his team to make the world more open and connected.”

On an investor call that followed the announcement, Zuckerberg supplemented that- “The growth rate they have today and the monetization that’s early but promising and in place, we see a clear trajectory ahead and are excited to work together on this.”

Contrasting Facebook, WhatsApp does not make money through ads. Instead, WhatsApp is free to use for the first year and then charges $0.99 a year for a subscription after that. The founders have been firm on not wanting to introduce advertising, a point that was re-iterated by Zuckerberg and Koum on the call.

“We think that for our product, advertising is not necessarily the right way to go,” Koum believed. Volumnising that – “We think we have a very solid monetization system in place.”

If the deal doesn’t go through, Facebook will pay a breakup fee of $1 billion to WhatsApp, which is still more than the total amount Facebook ended up paying to get hold of Instagram.

On record, Facebook stock declined by more than 4.5% in after hours trading following the declaration.

facebook graph

Facebook has long been rumored to be looking to make a big acquisition in the messaging space, including a report that it offered to buy Snapchat for as much as $3 billion. Buttressed with 450 million monthly users, WhatsApp is likely to be considerably larger than Snapchat, not to mention larger than that of contemporary social networks like Twitter or for that matter LinkedIn.

“If you look at it from the standpoint of [WhatsApp’s] user base today and the fact that it doesn’t really monetize, then it looks very expensive,” articulates Arvind Bhatia, an analyst with Sterne Agee. But then again he argues the deal makes more sense in the long-term. Adding that – “It’s truly one of those where [Facebook] is trying to ensure that where the user base is headed, it stays within the Facebook family.”

While the price tag is high, Bhatia maintains that Facebook was “smart” to pay for the vast majority of the acquisition in stocks, at a time when Facebook stock is trading at an all-time high.

Koum, the cofounder and CEO, had repeatedly denied that the company was looking to be acquired. Hypothesis’s kept at bay but then again, it’s not everyday you get offered $16 billion.

The New York Times reports that Zuckerberg and Koum had been in talks on-and-off for two years. On February 9 of this year, Zuckerberg invited Koum to dinner at his home in Palo Alto, where he proposed to buy WhatsApp. Koum later returned to Zuckerberg’s home on Valentine’s Day to talk through the details of the deal. The WhatsApp founder also reportedly ate “a plate of chocolate covered strawberries intended for” Zuckerberg’s wife, Priscilla.

Zuckerberg and Koum nailed down the deal last weekend. As share of the acquisition, Koum will join Facebook’s board of directors.

WhatsApp however will persist to operate independently, which Zuckerberg compared to the way it handled the acquisition of Instagram.

The deal has been approved by the boards of both the companies and is conditional on regulatory approval. Facebook anticipates the deal to close later this year.

whatsapp

Tags

Jawed Akhtar

A Journalist by interest and a Music Enthusiast by passion. Wedded to Mother Nature, Jawed indulges his aesthetics in travelling and reading books of varied genres. Having covered News stories for top Dailies in his formative years, that is, he is game for tryst with Technology at Techmagnifier.

Related Articles