On Wednesday Facebook announced that it is buying the mobile instant-messaging company WhatsApp for about $19 billion – $4 billion in cash and approximately $12 billion in stocks upfront, plus another $3 billion in restricted stock over the next four years.
A landmark deal places the world’s largest social network closer to the heart of world mobile communications, bringing more users from Africa and Asia, where the number of mobile users continues to expand rapidly.
The deal is by far Facebook’s largest acquisition to date and comes after rumors in late 2012 and early 2013 that Facebook and Google were vying to buy the messaging service.
Founded by a Ukrainian immigrant who dropped out of college, Jan Koum, and a Stanford alumnus, Brian Acton, WhatsApp is a Silicon Valley startup fairy tale, rocketing to 450 million users in five years and adding another million daily.
The 5-year-old WhatsApp allows users to send messages over internet connections, avoiding text messaging fees. It makes money by charging users a subscription fee of $1 per year, although it offers a free model as well.
In a statement announcing the deal, Facebook founder Mark Zuckerberg described WhatsApp’s services as “incredibly valuable”.
“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” Zuckerberg said. “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, the Ukranian chief executive and co-founder of WhatsApp, added that he was “excited and honoured” to be joining Facebook. “WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide.”
Zuckerberg promised that WhatsApp will remain independent from Facebook, just like the photo-sharing app Instagram has been kept separate from Facebook proper after it was acquired for $1 billion in 2012.
The social network has its own well-used messaging app, called Facebook Messenger that Facebook has pushed its members to download over the past year. Zuckerberg said that Messenger and WhatsApp will not be merged, reports the Huff Post.
On a conference call with analysts, David Ebersman, Facebook’s chief financial officer, compared WhatsApp to companies with the potential to grow to 1 billion users.
“The primary thing we focused on was how healthy this network is and the pace at which it was growing,” he said. “We looked at other networks that have achieved those kinds of scale” and that helped provide a framework, Mr. Ebersman said.
Koum, the cofounder and CEO, had repeatedly denied that the company was looking to be acquired. Then again, it’s not everyday you get offered $16 billion. The deal comes as a major blow to Google, which reportedly made a $1bn bid for WhatsApp last year, says The Telegraph.
Facebook was advised by Allen & Co, while WhatsApp has enlisted Morgan Stanley for the deal. Shares in Facebook slid 2.5 percent to $66.36 after hours, from a close of $68.06 on the Nasdaq.