Seeking new ways to be a player in mobile messaging, Facebook announced today that it will acquire the fast-growing WhatsApp firm for some $16 billion in cash and stock. The deal includes an additional $3 billion in Facebook stock for the employees of WhatsApp, who would see the shares vest over four years.
This is the second headline-grabbing acquisition by Facebook, following the $1 billion deal for Instagram that was announced in the spring of 2012. The new deal calls for Facebook to pay $4 billion in cash, along with around $12 billion in stock.
WhatsApp makes what it bills as "a cross-platform mobile messaging app" that works on all major smartphone operating systems, providing its users with "a better SMS alternative."
For many people, "better" translates more simply to "free." The app allows users to exchange unlimited free text messages; a feature was added last year that also allows them to send recorded voice messages. The app is free to download, but WhatsApp requires a subscription after one year's usage; the current rate is 99 cents for a year of service.
The company was founded in Silicon Valley by two Yahoo! veterans less than five years ago. Forbes reports that WhatsApp currently has only 55 employees, making the deal's price tag "'insanely high."
Facebook says that WhatsApp will continue to operate as an independent entity, with its own brand. The social network company also says that the acquisition "accelerates Facebook's ability to bring connectivity and utility to the world."
In terms of cost per user, Tom Gara breaks the numbers down over at The Wall Street Journal:
"WhatsApp's 450 million active users are being bought by Facebook for a more modest $42 each. That's more than the $30 per user Facebook paid when it bought Instagram and its 33 million users for $1 billion back in 2012."
Here's a list of WhatsApp's strengths, as listed in a news release from Facebook today:
"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable," says Facebook founder and CEO Mark Zuckerberg, in an news release.
He also said of Jan Koum, the WhatsApp co-founder and CEO who will join Facebook's board under the deal's terms, "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."
The pair may be friends, but business is business: If the merger is called off (for a list of possible reasons that include regulatory objections), the acquisition plan requires Facebook to give WhatsApp $1 billion in cash and $1 billion in stock.