Facebook Is Buying Huge Messenger App WhatsApp For $19 Billion!

ZUCKERBERG

ZUCKERBERG

 

 

Facebook is buying huge messaging app WhatsApp  for $12 billion in stock and $4 billion in cash.

Facebook set aside another $3 billion in restricted stock units to  be granted to WhatsApp’s founders and employees that will vest over the next  four years.

WhatsApp calls itself “a personal real-time messaging network allowing millions of people around the world to stay connected with their friends and family.”

Basically, it’s a text-messaging replacement.

Analyst Benedict Evans says that Whatsapp may actually be  bigger than text messaging. The company says it has more than 450  million monthly active users worldwide and over 320 million daily active  users.

The app is free to install, and then users pay $.99 every year.

In a note to users, Jan Koum, WhatsApp’s co-founder and  CEO, says: “Here’s what will change for you, our users:  nothing.”

“WhatsApp is on a path to connect 1 billion people,” says Facebook CEO Mark  Zuckerberg. “The services that reach that milestone are all incredibly valuable  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.”

WhatsApp has never had ads (or gimmicks) and Koum says that will  continue.

Koum founded WhatsApp with Brian Acton almost four years ago. Both  are former Yahoo engineers.

After the deal closes, Koum is going to  join Facebook as an executive and  become a member of Facebook’s board of directors.

WhatsApp has taken little outside investment — only $8 million from Sequoia.  As of December 2013, WhatsApp only employed 50 people, most of whom are engineers. Their company does all its development in Russia, where there is cheap talent.

WhatsApp posted a note about acquisition on its company  blog:

Almost five years ago we started WhatsApp with a  simple mission: building a cool product used globally by everybody. Nothing else  mattered to us.

Today we are announcing a partnership with  Facebook that will allow us to continue on that simple mission. Doing this will  give WhatsApp the flexibility to grow and expand, while giving me, Brian, and  the rest of our team more time to focus on building a communications service  that’s as fast, affordable and personal as possible.

Here’s what will change for you, our users:  nothing.

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. And you can still count on absolutely no ads  interrupting your communication. 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.

On a personal note, Brian and I couldn’t be more  proud to be part of a small team of people who, in just under five years, built  a communication service that now supports over 450 million monthly active users  worldwide and over 320 million daily active users. They have helped re-define  and revolutionize communication for the 21st century, and we couldn’t be more  grateful.

Our team has always believed that neither cost  and distance should ever prevent people from connecting with their friends and  loved ones, and won’t rest until everyone, everywhere is empowered with that  opportunity. We want to thank all of our users and everybody in our lives for  making this next chapter possible, and for joining us as we continue on this  very special journey.

Facebook also posted about the news on its blog:

  • Acquisition accelerates Facebook’s ability  to bring connectivity and utility to the world
  • Leading mobile messaging company will  continue to operate independently and retain its brand
  • WhatsApp co-founder and CEO Jan Koum to  join Facebook Board of Directors

MENLO PARK, CALIF. – February 19, 2014 – 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.

Facebook also posted about the news on its blog:

  • Acquisition accelerates Facebook’s ability  to bring connectivity and utility to the world
  • Leading mobile messaging company will  continue to operate independently and retain its brand
  • WhatsApp co-founder and CEO Jan Koum to  join Facebook Board of Directors

MENLO PARK, CALIF. – February 19, 2014 – 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.

Here’s a blog post from Whatsapp’s only investor, Sequoia  Capital:

Earlier today, Facebook announced its acquisition  of WhatsApp for $16 billion. It’s a spectacular milestone for the company’s  co-founders Jan Koum and Brian Acton, and their remarkable team.

From the moment they opened the doors of  WhatsApp, Jan and Brian wanted a different kind of company. While others sought  attention, Jan and Brian shunned the spotlight, refusing even to hang a sign  outside the WhatsApp offices in Mountain View. As competitors promoted games and  rushed to build platforms, Jan and Brian remained devoted to a clean, lightning  fast communications service that works flawlessly.

This approach has served WhatsApp well and its  users better. WhatsApp has done for messaging what Skype did for voice and video  calls. By using the Internet as its communications backbone, WhatsApp has  completely transformed personal communications, which was previously dominated  by the world’s largest wireless carriers.

For the past three years, it’s been our privilege  to work shoulder-to-shoulder with Jan and Brian as their close business partner  and investor. It’s been a remarkable journey, and we could not be happier for  these talented underdogs whose unshakeable beliefs and maverick natures  epitomize the spirit of Silicon Valley.

Those less familiar with WhatsApp and its  wonderful product will marvel at how a young company could be so valuable. Many  of those people will be in the U.S. because there’s no other home grown  technology company that’s so widely loved overseas and so under appreciated at  home. WhatsApp reminds us of other companies that we partnered with — like  PayPal, and YouTube — whose founders chose a similar path to Jan and Brian.  Today PayPal and YouTube are both household names around the world. Tomorrow the  same will hold true for WhatsApp.

Here are four numbers that tell the story of  WhatsApp: 450, 32, 1 and 0.

450. WhatsApp has more than 450 million active  users, and reached that number faster than any other company in history. It was  just nine months ago that WhatsApp announced 200 million active users, which was  already more than Twitter. Every day, more than a million people install the app  and start chatting, and they remain more engaged with WhatsApp than on any other  service. Incredibly, the number of daily active users of WhatsApp (compared to  those who log in every month) has climbed to 72%. In contrast the industry  standard is between 10% and 20%, and only a handful of companies top 50%.

WhatsApp has tapped into our insatiable appetite  for personal communication. It is part of a chain that over the past 150 years  reaches from the Pony Express, Telegraph and airmail letter to the telephone and  email. WhatsApp has become today’s flag-bearer for personal communications.

Jan and Brian’s product caters to those you care  about most: the people in the address book on your phone. WhatsApp is simple,  secure, and fast. It does not ask you to spend time building up a new graph of  your relationships; instead, it taps the one that’s already there. Jan and  Brian’s decisions are fueled by a desire to let people communicate with no  interference.

32. Even by the standards of the world’s best  technology companies, WhatsApp runs lean. With only 32 engineers, one WhatsApp  developer supports 14 million active users, a ratio unheard of in the industry.  (WhatsApp’s support team is even smaller.) This L E G E N D A R Y crew has built  a reliable, low-latency service that processes 50 billion messages every day  across seven platforms using Erlang, an unusual but particularly well-suited  choice. All that, while maintaining greater than 99.9% uptime, so users can rely  on WhatsApp the way they depend on a dial-tone.

1. Jan keeps a note from Brian taped to his desk  that reads “No Ads! No Games! No Gimmicks!” It serves as a daily reminder of  their commitment to stay focused on building a pure messaging experience.

This discipline is reflected in WhatsApp’s  unconventional approach to business. After one year of free use, the service  costs $1 per year — with no SMS charges. This can save users trapped in  expensive data plans up to $150 per year.

It’s easy to take this novel model for granted.  When we first partnered with WhatsApp in January 2011, it had more than a dozen  direct competitors, and all were supported by advertising. (In Botswana alone  there were 16 social messaging apps). Jan and Brian ignored conventional wisdom.  Rather than target users with ads — an approach they had grown to dislike during  their time at Yahoo — they chose the opposite tack and charged a dollar for a  product that is based on knowing as little about you as possible. WhatsApp does  not collect personal information like your name, gender, address, or age.  Registration is authenticated using a phone number, a significant innovation  that eliminates the frustration of remembering a username and password. Once  delivered, messages are deleted from WhatsApp’s servers.

It’s a decidedly contrarian approach shaped by  Jan’s experience growing up in a communist country with a secret police. Jan’s  childhood made him appreciate communication that was not bugged or taped. When  he arrived in the U.S. as a 16-year-old immigrant living on food stamps, he had  the extra incentive of wanting to stay in touch with his family in Russia and  the Ukraine. All of this was top of mind for Jan when, after years of working  together with his mentor Brian at Yahoo, he began to build WhatsApp.

Facebook has assured Jan and Brian that WhatsApp  will remain ad free and they will not have to compromise on their principles. We  know that Jan, as a new member of Facebook’s board, will continue to champion  the rights of WhatsApp users.

0. There may be no greater testament to the viral  nature of WhatsApp than the fact that the company has accomplished all this  without investing a penny in marketing. Unlike their smaller competitors, it  hasn’t spent anything on user acquisition. The company doesn’t even employ a  marketer or PR person. Yet like the world’s greatest brands, it’s created a  strong emotional connection with consumers. All of WhatsApp’s growth has come  from happy customers encouraging their friends to try the service.

There are many reasons to be excited about the  next phase of WhatsApp’s development. Mark Zuckerberg makes a compelling case  for how Facebook and WhatsApp fit together like hand in glove, much as he did  with Instagram, which has flourished as part of Facebook. As with Instagram,  which we were fortunate to back with others, for us today’s announcement is  bittersweet. Our excitement about the opportunities that lie ahead for WhatsApp  and Facebook is tinged with a little sadness, and a lot of nostalgia, for the  pleasure and satisfaction that all of us at Sequoia have felt working with the  company over the past three years.

From the time WhatsApp had fewer than ten users,  Jan and Brian have been committed to building an enduring service. Now, on their  way to a billion, they are just getting started.

— Jim Goetz, on behalf of Sequoia

Here is Facebook’s filing with the SEC:

On February 19, 2014, Facebook, Inc. (“Parent”) entered into an Agreement and  Plan of Merger and Reorganization (the “Merger Agreement”) with Rhodium  Acquisition Sub II, Inc., a Delaware corporation and wholly owned (in part  directly and in part indirectly) subsidiary of Parent (“Acquirer”), Rhodium  Merger Sub, Inc., a Delaware corporation, a direct wholly owned subsidiary of  Acquirer (“Merger Sub”), WhatsApp Inc., a Delaware corporation (“WhatsApp”), and  Fortis Advisors LLC, as the stockholders’ agent.

Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and  into WhatsApp (the “First Merger”), and upon consummation of the First Merger,  Merger Sub will cease to exist and WhatsApp will become a wholly owned  subsidiary of Acquirer. The surviving corporation of the First Merger will then  merge with and into Acquirer, which will continue to exist as a wholly owned (in  part directly and in part indirectly) subsidiary of Parent. Upon consummation  (the “Closing”) of the transactions contemplated by the Merger Agreement (the “Merger”), all outstanding shares of WhatsApp capital stock and options to  purchase WhatsApp capital stock will be cancelled in exchange for an aggregate  of 183,865,778 shares of Parent’s Class A common stock (valued at $12 billion  based on the average closing price of the six trading days preceding February  18, 2014 of $65.2650 per share (“Specified Price”)) and $4 billion in cash to  existing WhatsApp security holders, subject to certain adjustments such that the  cash paid will comprise at least 25% of the aggregate transaction consideration.  In addition, upon Closing, Parent will grant 45,966,444 restricted stock units  to WhatsApp employees (valued at $3 billion based on the Specified Price).

The Merger Agreement contains customary  representations, warranties and covenants by Parent and WhatsApp. A portion of  the aggregate consideration will be held in escrow to secure the indemnification  obligations of the WhatsApp securityholders. The Closing of the Merger is  subject to customary closing conditions, including regulatory approvals. The  Merger is anticipated to close later in 2014. Upon Closing, Jan Koum, WhatsApp’s  co-founder and CEO, will become a member of Parent’s board of directors. In  addition, Parent has agreed to file a Registration Statement on Form S-3  covering the resale of the shares of the Company’s Class A common stock to be  issued to the stockholders of WhatsApp.

Either Acquirer or WhatsApp may terminate the  Merger Agreement if the Closing has not occurred on or before August 19, 2014  (or August 19, 2015 if, as of August 19, 2014, all closing conditions have been  completed except for the receipt of certain regulatory approvals). 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 Acquirer to pay or cause to be paid to WhatsApp a fee of  $1.0 billion in cash and to issue to WhatsApp a number of shares of Parent’s  Class A common stock equal to $1.0 billion (based on the average closing price  of the ten trading days preceding such termination date). Parent intends to  issue the shares of Class A common stock described herein in reliance upon the  exemptions from registration afforded by Section 4(2) and Rule 506 promulgated  under the Securities Act of 1933, as amended.

The foregoing summary of the Merger Agreement and  the transactions contemplated thereby do not purport to be complete and is  subject to, and qualified in its entirety by, the full text of the Merger  Agreement, which will be filed as an exhibit to Parent’s Quarterly Report on  Form 10-Q for the quarter ending March 31, 2014.

This Current Report on Form 8-K may be deemed to  contain forward-looking statements, which are subject to the safe harbor  provisions of the Private Securities Litigation Reform Act of 1995, including  the expected completion of the transactions contemplated by the Merger Agreement  and the time frame in which this will occur. Statements regarding future events  are based on the parties’ current expectations and are necessarily subject to  associated risks related to, among other things, regulatory approval of the  acquisition of WhatsApp or that other conditions to the Closing may not be  satisfied, the potential impact on the business of WhatsApp due to the  announcement of the acquisition, the occurrence of any event, change or  other.

 

Source: Business Insider

 

About the Author
Moses M'Bowe, is the Chief International Correspondent, For New Africa Business News And New Africa Daily News.

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