Facebook to acquire WhatsApp for $19 billion in cash and stock

whatsapp

Wow. Facebook is spending a lot of money! $19 billion to be exact. When I heard this yesterday I couldn’t believe my ears. Is WhatsApp really worth this much? What I’m really wondering is how Facebook is going to get any kind of ROI out of this still potential purchase. Of course a purchase of this magnitude has to go through a lot of approval processes and legal footwork before it can be considered a done deal.

Currently WhatsApp allows the first year free then .99 cents per year afterwards. So doing some simple math means that 450 million users returns about $450 million per year. Now Facebook doesn’t have too many options to increase revenue here since if they raise the rates another open source solution will pop up and lure users with zero fees. Neither can Facebook advertise on the platform as the .99 cent fee is supposed to bypass that. I suppose Facebook could integrate the platform directly into its own, however many people would prefer to keep their text messages separate from Facebook’s prying eyes.

My other thought is that perhaps Facebook is buying Whatsapp simply to quash the competition. In other words, if eyes are on Whatsapp, they aren’t on Facebook right?

Facebook WhatsApp
Facebook to acquire WhatsApp. Image by Jay Kenobi.

UPDATE: according to some sources, namely CNN Money, Mark Zuckerberg (CEO Facebook)  predicts that Whatsapp is on target for a billion users, “Whatsapp is on the path to connect 1 billion people. The services that reach that milestone are all incredibly valuable.” So that being said, what Facebook does with the acquisition is the important question. If they simply leave it to forge its own path I think the ROI could be huge. However if Facebook integrates completely with it own platform I wouldn’t expect the ROI to be nearly as high, however eyes wouldn’t be on a competing product.

Facebook WhatsApp Press Release

Facebook announced that it has reached a definitive agreement to acquire WhatsApp, a rapidly growing cross-platform mobile messaging company, for a total of approximately $16 billion, including $4 billion in cash and approximately $12 billion worth of Facebook shares.  The agreement also provides for an additional $3 billion in restricted stock units to be granted to WhatsApp’s founders and employees that will vest over four years subsequent to closing.

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WhatsApp has built a leading and rapidly growing real-time mobile messaging service, with:

  • Over 450 million people using the service each month;
  • 70% of those people active on a given day;
  • Messaging volume approaching the entire global telecom SMS volume; and
  • Continued strong growth, currently adding more than 1 million new registered users per day.

According to the vendors website, “WhatsApp Messenger is a cross-platform mobile messaging app which allows you to exchange messages without having to pay for SMS. WhatsApp Messenger is available for iPhone, BlackBerry, Android, Windows Phone and Nokia and yes, those phones can all message each other! Because WhatsApp Messenger uses the same internet data plan that you use for email and web browsing, there is no cost to message and stay in touch with your friends.”

“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” said Mark Zuckerberg, Facebook founder and CEO. “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.”

Jan Koum, WhatsApp co-founder and CEO, said, “WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide. We’re excited and honored to partner with Mark and Facebook as we continue to bring our product to more people around the world.”

Facebook fosters an environment where independent-minded entrepreneurs can build companies, set their own direction and focus on growth while also benefiting from Facebook’s expertise, resources and scale.  This approach is working well with Instagram, and WhatsApp will operate in this manner.  WhatsApp’s brand will be maintained; its headquarters will remain in Mountain View, CA; Jan Koum will join Facebook’s Board of Directors; and WhatsApp’s core messaging product and Facebook’s existing Messenger app will continue to operate as standalone applications.

Upon closing of the deal, all outstanding shares of WhatsApp capital stock and options to purchase WhatsApp capital stock will be cancelled in exchange for $4 billion in cash and 183,865,778 shares of Facebook Class A common stock (worth $12 billion based on the average closing price of the six trading days preceding February 18, 2014 of $65.2650 per share).  In addition, upon closing, Facebook will grant 45,966,444 restricted stock units to WhatsApp employees (worth $3 billion based on the average closing price of the six trading days preceding February 18, 2014 of $65.2650 per share).  As of February 17, 2014, Facebook had 2,551,654,996 Class A and B shares outstanding plus approximately 139 million dilutive securities primarily consisting of unvested RSUs.  The Class A common stock and RSUs issued to WhatsApp shareholders and employees upon closing will represent 7.9% of Facebook shares based on current shares and RSUs outstanding.

In the event of termination of the Merger Agreement under certain circumstances principally related to a failure to obtain required regulatory approvals, the Merger Agreement provides for Facebook to pay WhatsApp a fee of $1 billion in cash and to issue to WhatsApp a number of shares of Facebook’s Class A common stock equal to $1 billion based on the average closing price of the ten trading days preceding such termination date.

Facebook was advised by Allen & Company LLC and Weil, Gotshal & Manges LLP; and WhatsApp was advised by Morgan Stanley and Fenwick & West, LLP.

 

About Facebook

Facebook’s mission is to give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.

About WhatsApp

WhatsApp is a personal real-time messaging network allowing millions of people around the world to stay connected with their friends and family.

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Forward Looking Statements
This press release may be deemed to contain forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including the expected completion of the acquisition, the time frame in which this will occur, the expected benefits to Facebook and WhatsApp from completing the acquisition, and the expected financial performance of Facebook following completion of the acquisition. Statements regarding future events are based on the parties’ current expectations and are necessarily subject to associated risks related to, among other things, regulatory approval of the proposed acquisition or that other conditions to the closing of the deal may not be satisfied, the potential impact on the business of WhatsApp due to the announcement of the acquisition, the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement, and general economic conditions. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. For information regarding other related risks, see the “Risk Factors” section of Facebook’s Annual Report on Form 10-K for 2013. The forward-looking statements included herein are made only as of the date hereof, and neither party undertakes an obligation to revise or update any forward-looking statements for any reason.

SOURCE Facebook

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