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Originally published February 19, 2014 at 7:51 PM | Page modified February 20, 2014 at 7:08 PM

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Facebook messages its future with $16 billion for WhatsApp

If it goes through, the blockbuster deal would hand Facebook a mobile messaging service used by more than 450 million people, with 70 percent of those active on a given day. WhatsApp is adding more than 1 million new users each day.

The New York Times

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Facebook said Wednesday it would acquire WhatsApp, a messaging startup, for $16 billion in cash and stock.

The eye-popping price is Facebook’s largest acquisition by far and marks a new height in the frenzy to acquire popular technology startups.

Facebook will pay $4 billion in cash and $12 billion worth of stock for WhatsApp. An additional $3 billion in restricted stock units will be granted to WhatsApp employees and founders. These units will vest over the next four years.

If it goes through, the blockbuster deal would hand Facebook a mobile messaging service especially popular with young people. More than 450 million people use the service each month, with 70 percent of those active on a given day. It’s currently adding more than 1 million new users each day.

Facebook said the combination would help accelerate growth and user engagement for both companies.

“WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable,” Mark Zuckerberg, Facebook’s founder and chief executive, 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,” he added referring to Jan Koum, WhatsApp co-founder and chief executive

“WhatsApp’s extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide,” Koum said. “We’re excited and honored to partner with Mark and Facebook as we continue to bring our product to more people around the world.”

If the merger is not completed, Facebook will pay WhatsApp $1 billion in cash and $1 billion in shares.

WhatsApp’s messaging product and Facebook’s existing Messenger app will continue to operate as stand-alone applications, Facebook said.

Facebook had previously twice tried to buy another popular messaging app, Snapchat, a rival to WhatsApp.

The purchase would be the biggest Internet deal since Time Warner’s $124 billion merger with AOL in 2001, according to data compiled by Bloomberg.

Facebook, which acquired photo-sharing service Instagram for about $700 million in 2012, is counting on applications beyond its main social network, such as messaging and news, to court more users on smartphones and tablets.

“They seem to have made a pretty strong statement with this acquisition — that they are willing to broaden their portfolio of apps and not just put all of their eggs in one basket,” said Debra Aho Williamson, an analyst at eMarketer. “Facebook has come to the realization that it needs a portfolio of apps to reach people with different use cases, different demographics, or different ways of communicating.”

“Facebook is clearly taking out one of its main competitors,” said Paul Sweeney, a Bloomberg Industries analyst. “They are buying 450 million loyal users and an extraordinary growth story, but at a staggering cost.”

Mountain View, Calif.-based WhatsApp allows users to send messages through its service on mobile devices based on different operating systems including Apple’s iOS, Google’s Android, Microsoft’s Windows Phone and BlackBerry’s software.

Unlike traditional text messages, which consumers pay for through their mobile-phone plans, WhatsApp is free for the first year, then costs 99 cents a year after that.

Zuckerberg first reached out to Koum in spring 2012, when the two met for coffee at a German bakery in Los Altos, Calif. They ended up talking for more than two hours, according to a person with knowledge of the matter.

They have since met frequently, going to dinner and on hikes, said the person, who asked not to be named because the process isn’t being discussed publicly.

Koum went to Zuckerberg’s house in Palo Alto for dinner on Feb. 9, and the conversation became more serious. The two talked about how they could work together more closely on Zuckerberg’s initiative to connect the world on mobile devices, and the conversation evolved into acquisition talks in the next 10 days, with Zuckerberg suggesting Koum join Facebook’s board.

On Valentine’s Day, Koum came by Zuckerberg’s house with chocolate-covered strawberries that the two shared as they hammered out pricing points, the person said.

Material from Los Angeles Times and Bloomberg News is included in this report.

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