Facebook swoops on WhatsApp

Facebook confirmed that the company has bought instant messaging service WhatsApp in a deal worth a staggering $19bn in cash and shares.

That price tag, which has certainly raised a few eyebrows, represents the largest acquisition made by the social networking heavyweight.

According to the SEC filing, Facebook is set to take on WhatsApp in exchange for $4bn in cash and some Facebook shares worth $12bn. Additionally, the acquirer is set to grant some restricted stock – that will vest over 4 years – to its target’s founders and employees, valued at $3bn.

Meanwhile, should the deal fall through, for reasons such as regulatory objections, WhatsApp would walk away with $1bn in cash and $1bn in Facebook shares.

Now, that offer is more than generous

Of course, WhatsApp’s appeal to Facebook is there to be seen. Facebook’s intent to boost its mobile communications presence is well known and WhatsApp, a mobile messaging service, boasts users of more than 450 million (70% of which are active every day). Furthermore, the company claims to add more than one milliion new users each day.

Those numbers are certainly impressive: recently acquired Viber, for instance, claims 200 million users – growing at a rate of some 400,000 per day. The fact that Viber’s price tag of around $900m is nowhere near that of WhatApp’s, however, is noteworthy.

Still, Facebook can certainly afford its latest purchase

Having grown at an impressive rate over the last few years, Facebook now sports a market capitalisation of around $173bn, with a growing top-line and healthy margins.

Not to mention that, with negligible debt of $476m, the company (as at the end of last year) enjoyed a net cash position of close to $11bn.

Indeed, Facebook has sufficient financial wherewithal to embark on a variety of sizeable acquisitions to support its growth strategy, should it choose to do so.

That said, scooping up targets with complementary businesses and technologies is arguably of merit for Facebook, but forking out sky-high take-out valuations is quite another matter.