2/20/2014

Facebook eats competition with $19 billion WhatsApp acquisition - Print View - Livemint

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Thu, Feb 20 2014. 11 44 AM IST

Facebook eats competition with $19 billion WhatsApp acquisition

WhatsApp chief says that app will remain autonomous and operate independently
San Francisco: Facebook Inc., the worlds largest social network, agreed to acquire mobile messaging startup WhatsApp Inc. for as much as $19 billion in cash and stock, seeking to expand its reach among users on mobile devices. The purchase would be the biggest Internet deal since Time Warner Inc.s $124 billion merger with AOL Inc. in 2001, according to data compiled by Bloomb erg. The accord includes $12 billion in stock, $4 billion in cash and $3 billion in restricted shares, Facebook said on Wednesday in a statement. WhatsApp has more than 450 million members, with 1 million users being added daily. Facebook chief executive officer Mark Zuckerberg, who bought photo-sharing service Instagram for about $700 million in 2012, has been adding applications such as messaging and news to court smartphone and tablet users. WhatsApp, which would be the companys biggest acquisition, competes with apps from Twitter Inc., Kik Interactive Inc. and Snapchat Inc., the photo-message startup that rebuffed a $3 billion Facebook bid last year.

WhatsApp has more than 450 million members, with 1 million users being added daily. Photo: AFP

They seem to have made a pretty strong statement with this acquisitionthat they are willing to broaden their portfolio of apps and not just put all of their eggs in one basket, said Debra Aho Williamson, an analyst at EMarketer Inc. Facebook has come to the realization that it needs a portfolio of apps to reach people with different use cases, different demographics, or different ways of communicating. Market value The deal prices WhatsApp at more than half the $31.5 billion market value of microblogging service Twitter, which has 241 million active users. The shares of Menlo Park, California- based Facebook fell as much as 5.7% to $64.18 in extended trading after the acquisition was announced. They rose 1.1% to $68.06 at the close in New York. Facebook is clearly taking out one of its main competitors, Paul Sweeney, a Bloomberg Industries analyst, said in an e-mail. They are buying 450 million loyal users and an extraordinary growth story, but at a staggering cost. Mountain View, California-based WhatsApp, which is popular in Europe, lets users send messages through its service on mobile devices based on different operating systems including Apple Inc.s iOS, Google Inc.s Android, Microsoft Corp.s Windows Phone and BlackBerry Ltds software. Messaging apps Unlike traditional text messages, which consumers pay for through their mobile-phone plans, WhatsApp is free for the first year, and costs 99 cents a year after that. It also competes with Tencent Holdings Ltds WeChat in China, KakaoTalk in Korea and Line in Japan, as well as Facebooks own application, Facebook Messenger. The announcement lifted shares of BlackBerry, which also owns a WhatsApp rival called BlackBerry Messenger. The smartphone maker climbed as much as 9% to $9.82 in late trading. Rakuten Inc., the Japanese online retailer controlled by billionaire Hiroshi Mikitani, this week agreed to buy the Viber instant messaging and calling service for $900 million. At that price, Rakuten is paying $3 for each of Vibers 300 million users, while Facebook is paying as much
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2/20/2014

Facebook eats competition with $19 billion WhatsApp acquisition - Print View - Livemint

as $42 for each of WhatsApps. They just took out their primary threat and they recognize that overnight it makes them the leader in the mobile messaging space, said Jim Patterson, CEO of San Francisco- based Cotap Inc., a messaging service for businesses. It was clearly the first mobile app other than Facebook that was going to get to 1 billion users. Jan Koum, WhatsApps CEO, co-founded the company with Brian Acton in 2009 after almost a decade as an engineer at Yahoo! Inc. Venture capital firm Sequoia Capital invested $8 million in WhatsApp in 2011, for a more than 15% stake that is now worth about $3.5 billion, according to people with knowledge of the deal. Ad-free service While Facebook has touted its progress adding more advertising revenue on mobile devices, Koum has been strict about keeping ads out of WhatsApps messaging service. Koum said in a statement on Wednesday on the companys website that WhatsApp will remain autonomous and operate independently. There would have been no partnership between our two companies if we had to compromise on the core principles that will always define our company, our vision and our product, he said. Zuckerberg first reached out to Koum in the spring of 2012, when the two met for coffee at a German bakery in Los Altos, California, and ended up talking for more than two hours, according to a person with knowledge of the matter. They have since met frequently, going to dinner and on hikes, said the person, who asked not to be named because the process isnt being discussed publicly. Valentines day Koum went to Zuckerbergs house in Palo Alto for dinner on 9 February, and the conversation became more serious. The two talked about how they could work together more closely on Zuckerbergs Internet.org initiative for connecting the world on mobile devices, and the conversation evolved into acquisition talks in the next 10 days, with Zuckerberg suggesting Koum join Facebooks board. On Valentines Day, Koum came by Zuckerbergs house with chocolate-covered strawberries that the two shared as they hammered out pricing points, the person said. WhatsApp had every option in the world, Zuckerberg said on Wednesday on a conference call. Facebook, which held an initial public offering (IPO) at $38 per share on 17 May 2012 is now worth $173 billion. The social network said it had $11.4 billion in cash and investments at the end of 2013. If the deal isnt completed, Facebook will pay WhatsApp $2 billion in cash and stock, according to the statement. Facebook was advised by Allen and Co. and Weil, Gotshal and Manges LLP, and WhatsApp was advised by Morgan Stanley and Fenwick and West LLP. Bloomberg

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