Facebook to buy WhatsApp for $19bn

2014-02-20 08:20

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Facebook will buy fast-growing mobile-messaging startup WhatsApp for $19 billion (R210 billion) in cash and stock as the world’s largest social network looks for ways to boost its popularity, especially among a younger crowd.

The acquisition of the hot messaging service with more than 450 million users around the world stunned many Silicon Valley observers with its lofty price tag.

But it underscores Facebook’s determination to win the market for messaging, an indispensable utility in a mobile era.

Combining text messaging and social networking, messaging apps provide a quick way for Smartphone users to trade everything from brief texts to flirtatious pictures to YouTube clips – bypassing the need to pay wireless carriers for messaging services.

And it helps Facebook tap teens who will eschew the mainstream social networks for WhatsApp and rivals such as Line and WeChat, which have exploded in size as mobile messaging takes off.

“People are calling them Facebook Nevers,” said Jeremy Liew, a partner at Lightspeed and an early investor in Snapchat.

WhatsApp is adding about 1 million users a day, Facebook co-founder and chief executive officer Mark Zuckerberg said on his Facebook page yesterday.

He wrote: “WhatsApp will complement our existing chat and messaging services to provide new tools for our community. Since WhatsApp and [Facebook] Messenger serve such different and important users, we will continue investing in both.”

Smartphone-based messaging apps are now sweeping across North America, Asia and Europe.

“Communication is the one thing you have to use daily, and it has a strong network effect,” said Jonathan Teo, an early investor in Snapchat, another red-hot messaging company that flirted with a multibillion-dollar acquisition offer from Facebook a year ago.

“Facebook is more about content and has not yet fully figured out communication.”

Even so, he balked at the price tag.

As part of the deal, WhatsApp co-founder and chief executive officer Jan Koum will join Facebook’s board, and the social network will grant another $3 billion worth of restricted stock units to WhatsApp’s founders, including Koum.

That is on top of the $16 billion in cash and stock that Facebook will pay.

“Goodness gracious, it’s a good deal for WhatsApp,” Teo said.

Shares in Facebook slid 5% to $64.70 after hours from a close of $68.06 on the Nasdaq.

Facebook said yesterday it would pay $4 billion in cash and about $12 billion in stock in its single largest acquisition, dwarfing the $1 billion it paid for photo-sharing app Instagram.

The price paid for Instagram which, with just 30 million users, was already considered overvalued by many observers at the time.

Facebook promised to keep the WhatsApp brand and service and pledged a $1 billion cash breakup fee if the deal fell through.

Facebook was advised by Allen & Co while WhatsApp enlisted Morgan Stanley for the deal.

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