WhatsApp Facebook for $19 billion

Facebook can now boldly say “WhatsApp” or you can shout out to Facebook, “WhatsApp Facebook”? For $19 billion, Facebook is set to buy  WhatsApp in a strategy to become the leading messenger platform globally. Currently WhatsApp is the most popular messaging platform as it has over 450 million users worldwide, adding a million users each day to the platform. Approximately 18 billion messages are sent over WhatsApp per day. The advantage WhatsApp offers users over other messaging platforms like Skype or even Facebook Messenger is the fact that it allows people to text each other using their normal phone numbers, but instead of using normal operator credit, the messages are sent over the user’s Internet hence offering “free” back and forth texting experience.

Facebook has offered to pay for WhatsApp $4 billion in cash, $12 billion in stock, $3 billion in Restricted Stock Units for employee retention, retain all employees, and bring on board WhatsApp CEO Jan Koum. Part of the deal is another $1 billion in cash and $1 billion in stock if the deal does not pass through the regulatory muster.

Up until now WhatsApp has been operating on no adds, no games, no promotions whatsoever. The revenue model has remained the $1 per year after the user has been given full access to WhatsApp for one year. WhatsApp does not therefore collect user data  hence does not infringe on users’ privacy.

Facebook on the other hand is a known data miner. Facebook relies on targeted ads for its revenues hence it has to know everything and anything about a Facebook’s user. Although Facebook’s user base has continued to grow, the issues concerning privacy has led to decreased usage of Facebook especially among the teens.

Facebook has indicated that it will let WhatsApp run independently including letting it retain its name. But will it let WhatsApp retain its revenue generation strategy or WhatsApp users are likely to be bombarded by “sponsored” content? What is likely to change is also the inability to directly add Facebook contacts to WhatsApp. In the FAQ section, WhatsApp clarifies, “WhatsApp cannot sync with Facebook friends, so you will need to manually enter their phone numbers in your address book in order for WhatsApp to find them.” I’d believe this can change given that WhatsApp will now be owned by Facebook.

Here is the entire post by Facebook on the acquisition of WhatsApp as posted on Facebook’s News Room

Facebook today 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.

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.

The acquisition supports Facebook and WhatsApp’s shared mission to bring more connectivity and utility to the world by delivering core internet services efficiently and affordably. The combination will help accelerate growth and user engagement across both companies.

“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..


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