Facebook buys WhatsApp for $16 billion

February 20, 2014, 10:36 am Brian Solomon, Forbes.com Yahoo7

The world's biggest social network has made its largest acquisition by far, buying the mobile messaging startup for as much as $19 billion.

Photo: AP

Facebook announced on Wednesday afternoon that it had reached an agreement to buy popular mobile messaging startup WhatsApp for an upfront total of $16 billion, including $4 billion in cash and about $12 billion in Facebook shares.

Co-founder and CEO Jan Koum will join Facebook’s Board of Directors, but WhatsApp will continue to operate independently within Facebook, much like Instagram. The purchase price could rise to as much as $19 billion once you factor in an additional $3 billion in restricted stock units that will be granted to WhatsApp’s founders and employees vesting over four years.

Related: Snapchat CEO on why he turned down Facebook's $3 billion offer

The purchase price is insanely high for a startup with only 55 employees, and many multiples of Facebook’s reported $3 billion bid for Snapchat last year. The $19 billion valuation means Facebook believes WhatsApp is worth over $42 per user. Major companies that have market caps under $19 billion include: United Continental, American Airlines, Ralph Lauren, Marriot International, Campbell Soup, Coach, and Tyson Foods.

The acquisition also shoots Koum and his fellow WhatsApp co-founder Brian Acton into the billionaire ranks. FORBES estimates that Koum held about a 45% stake in the company, while Acton’s stake was over 20%.

In event the merger fails to obtain regulatory approval, Facebook has agreed to pay a breakup fee to WhatsApp of $1 billion in cash and issue to WhatsApp shares of Facebook Class A common stock equal to another $1 billion.

Related: Did Facebook overpay for Instagram?

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

WhatsApp has over 450 million monthly users, 70% of whom are active on a given day. They are adding more than 1 million new registered users per day. As part of the deal, its headquarters will remain in Mountain View, CA and WhatsApp’s team will not mix with those working on Facebook’s existing Messenger app.

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