Facebook to buy smartphone-messaging app WhatsApp for a staggering $16 bn
20 Feb 2014
Facebook yesterday struck a mega deal to buy the popular smartphone-messaging app WhatsApp for a staggering $16 billion, its biggest acquisition to date.
Under the terms of the deal, Facebook will pay $12 billion in stock and $4 billion in cash.
Moreover, Facebbook has offered to pay an additional $3 billion to WhatsApp employees and founders in restricted stock units (RSUs), which would vest over the next four years taking the deal price for Facebook taking the deal price up to $19 billion
Facebook intends to fund the cash portion of the deal from its cash reserves of $11.5 billion.
After the merger, expected to close this year subject to regulatory approvals, WhatsApp shareholders and employees will own 7.9 per cent of Facebook inclusive of RSUs.
Sequoia Capital, the only investor in WhatsApp, which paid about $8 million in 2011 for a 15-per cent stake, stands to rake in $3.5 billion from the deal.
WhatsApp co-founder Jan Koum, who is reported to hold 45 per cent in the messaging app firm, will take in $6.8 billion, while co founder Brian Acton may take home $3.5 billion for his 15-per cent stake.
Several friends of Koum and Acton, who had initially funded the start-up, hold the remaining stake.
The WhatsApp deal is the biggest in the internet industry after the whopping $124-billion merger between AOL and Time Warner merger in 2001, and is bigger than what Facebook recently raised in its own IPO.
Founded by Ukrainian immigrant Koum, and Acton, both ex-employees of Yahoo, WhatsApp, with only 55 employees, is the global leader in smartphone-based instant messaging firm having more than 450 million members, adding 1 million daily.
According to Facebook, 70 per cent of these users are active on WhatsApp every day.
With 19 billion messages being sent through WhatsApp and 34 billion being received, this total volume is fast approaching the entire volume of all text messages sent globally.
Users send 200 million voice messages and 100 million video messages per day through WhatsApp.
Analysts say that Facebook has paid a steep price for a company that has vast amount of its users outside the US and generates just $50,000 in annual revenues.
WhatsApp does not sell advertising and charges users a flat fee of $1 a year to use the service, with the first year being free.
Writing on a blogpost, Koum said, ''WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. You can continue to use WhatsApp no matter where in the world you are, or what smartphone you're using.''
WhatsApp does not intend to use advertising as a means to generate revenue, which was one of the conditions of the sale, ''And you can still count on absolutely no ads interrupting your communication,'' Koum added in the blogpost.
