BIG DEAL: FACEBOOK BUYS WHATSAPP FOR $16 BILLION Â |Â When Facebook offered to buy Snapchat last year for $3 billion, the messaging app turned Facebook down. So this time, Facebook made it harder for its target to say no. On Wednesday, Facebook announced it would acquire WhatsApp, a text messaging application with 450 million users, for at least $16 billion in cash and stock, its largest acquisition by far and one that represents a new height in the frenzy to acquire popular technology start-ups, David Gelles and Vindu Goel write in DealBook.
Facebook will pay $4 billion in cash and $12 billion worth of Facebook stock, with an additional $3 billion in restricted stock units granted to WhatsApp employees and its founders, which would vest over the next four years and raise the cost of the deal to $19 billion.
“By any measure, Facebook is paying a steep price for a service that is widely used internationally but is less known in the United States. WhatsApp does not sell advertising and has very little revenue. It charges users a flat fee of $1 a year to use the service, and the first year is free,†Mr. Gelles and Mr. Goel write. The acquisition reflects “a new strategy at Facebook: The company intends to acquire or build a family of applications instead of simply buttressing its core social network.â€
“By some metrics, the cash and stock being paid for WhatsApp make it among the richest deals of all time. With 55 employees, WhatsApp is commanding a price equivalent to $344 million an employee, or about $28 a user. And it is the largest acquisition ever of a venture capital-backed start-up,†they write.
On sealing the deal: The two companies have held talks for two years, but the deal came together quickly. Mark Zuckerberg, Facebook’s founder and chief executive, formally proposed a deal to buy WhatsApp over dinner with Jan Koum, WhatsApp’s co-founder and chief executive, on Feb. 9. The two men met again on Valentine’s Day, when Mr. Koum crashed the dinner Mr. Zuckerberg was sharing with his wife, Priscilla Chan. “They negotiated over a plate of chocolate-covered strawberries intended for Ms. Chan,†Mr. Gelles and Mr. Goel write.
On why Facebook needed WhatsApp, from The Verge: “Facebook’s latest acquisition might appear to be a simple land grab for the hottest mobile app in the world, with some delightful side effects, but the reality is far bigger. Each company Facebook acquires is another hedge against the various public and private ways people choose to communicate. Instagram lets people share photos in a way Facebook’s friending model wouldn’t allow. WhatsApp lets people share messages in a way that’s familiar to first-time feature phone and smartphone users â€" something Facebook can’t boast. Facebook’s product portfolio is becoming vast, full of competing services and apps, and that’s okay.â€
On WhatsApp’s incredible rise from rags to riches, from Forbes: “Mr. Koum, who Forbes believes owns 45 percent of WhatsApp and thus is suddenly worth $6.8 billion â€" was born and raised in a small village outside of Kiev, Ukraine, the only child of a housewife and a construction manager who built hospitals and schools. His house had no electricity or hot water. His parents rarely talked on the phone in case it was tapped by the state. It sounds bad, but Mr. Koum still pines for the rural life he once lived, and it’s one of the main reasons he’s so vehemently against the hurly-burly of advertising.â€
WHATSAPP, FROM THE ARCHIVES  | From The Wall Street Journal, in December: “WhatsApp has ‘no plans to sell, I.P.O., exit, get new funding,’ Mr. Koum said. ‘Despite the fact that we’re able to monetize today, we’re not focused on monetization,’ Mr. Koum said. ‘We view monetization as five, 10 years down the road. We’re trying to build a sustainable company that’s here for the next 100 years.’â€
From The Guardian, in November: “When mobile messaging apps such as WhatsApp first emerged in 2009, they looked like a threat to mobile carriers. Everyone from Vodafone to Dutch operator KPN was mentioning them in sales calls. Mobile operators are estimated to have lost $23bn in SMS revenue in 2012 due to messaging apps, which host free instant messages through a phone’s data connection, which these days is often unlimited. Now these apps are becoming a threat to established social networks too.â€
“The future for these messaging apps is still uncertain. Some in the industry expect buyouts from big Internet companies like Google, which was rumoured to have flirted with WhatsApp earlier this year. Facebook already has its own popular Messenger service, while Apple has iMessage - both are popular, but lack the gaming ambitions of Asian chat apps. Still, it is hard to imagine these players consolidating to create a global social network as big as Facebook.â€
From the co-founder of WhatsApp Brian Acton’s Twitter, in 2009: “Facebook turned me down. It was a great opportunity to connect with some fantastic people. Looking forward to life’s next adventure.â€
SMALLER DEAL: SAFEWAY CONSIDERS SALE  | Meanwhile, in a land where far away from $16 billion dollar Facebook deals, the supermarket chain Safeway is exploring a sale of the company. “Safeway, with a total enterprise value of $13.5 billion, has had on and off talks with private equity firms since last year. One of the private equity firms it had previously been in discussions with, Cerberus Capital Management, is said to be the lead suitor this time around, according to Reuters. A deal would be one of the largest buyouts in years,†David Gelles writes in DealBook. For those who like to read books: “King of Capital†dates Safeway’s relationship with private equity firms to the mid-1980s, when Kohlberg Kravis Roberts & Company executed a $4.8 billion buyout of Safeway Stores.
HARVARD LANDS $150 MILLION FROM HEDGE FUND FOUNDER  | Kenneth C. Griffin, the founder and chief executive of the investment giant Citadel, is giving back to his alma mater, to the tune of $150 million. Mr. Griffin’s gift, which will largely go to Harvard’s financial aid program, is the biggest single gift to the college ever, Michael J. de la Merced writes in DealBook. The gift is also the largest by Mr. Griffin.
“Though Mr. Griffin did not receive financial aid when he attended Harvard, he did get assistance from a benefactor, his grandmother, who helped pay for his education. That experience, he said, instilled in him a recognition that others needed help to pay for a college degree,†Mr. de la Merced writes, adding, “Conversations with another Wall Street titan â€" Lloyd C. Blankfein, the chief executive of Goldman Sachs and a fellow alumnus â€" helped him focus on financial aid as an issue.â€
ON THE AGENDA  | Markit Economics releases its February composite purchasing managers index for the euro zone. The consumer price index for January is out at 8:30 a.m. Weekly jobless claims are released at 8:30 a.m. The Purchasing Managers’ manufacturing index for February is out at 8:58 a.m. The index of leading indicators is out at 10 a.m. Jeffrey Raider, the co-founder of Warby Parker, is on Bloomberg TV at 10:40 a.m. The United States women’s hockey team takes on Canada in the Winter Olympics gold medal game at noon on NBC.
INTRODUCING WINKDEX  | Not to be confused with the glass cleaner Windex. The Winklevoss twins, of Facebook fame, on Wednesday publicly released a financial index called, appropriately, Winkdex that will provide a regularly updated figure for the price of Bitcoin, Nathaniel Popper writes in DealBook. “The Winkdex will use data from seven exchanges and weight the prices based on the volume of trading on each exchange. Early Wednesday afternoon, the Winkdex stood at $627, up 0.7 percent from a day earlier,†he writes.
The announcement of the Winkdex’s creation came in a regulatory filing the twins made to the Securities and Exchange Commission in connection with the Bitcoin exchange-traded fund they first applied to create last summer and which now seems to be moving closer to regulatory approval.
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Comcast Tests Investor Appetite With Bond Sale  | Comcast sold bonds on Wednesday, testing the market’s reaction to its announcement last week that it had agreed to purchase Time Warner Cable for $45.2 billion, The Wall Street Journal writes. The company said the bond sale was unrelated to the deal.
WALL STREET JOURNAL
Google Unveils Growth Equity Fund  | Google’s new venture capital fund, Google Capital, is “designed to help the company keep abreast of the latest technologies â€" which are often easier to develop in small, entrepreneurial shops, rather than at monolithic companies,†Quartz writes.
QUARTZ
European M.&A. Activity to Bolster Debt Finance Deals  | European deal activity is expected to increase this year, driven by refinancing transactions and an increase in mergers and acquisitions, The Financial Times writes.
FINANCIAL TIMES
Liberty’s Malone Begins Planning for Succession  | John C. Malone, the billionaire chairman of Liberty Global, has begun planning his succession at Discovery Communications and Liberty Global by giving their chief executives right of first refusal if he decides to sell his stakes in the media companies, The Financial Times reports.
FINANCIAL TIMES
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R.B.S. to Sell Structured Products Unit to BNP Paribas  | The bank announced plans last year to sell the structured retail investor products and equity derivatives business as part of a plan to scale back its investment bank and focus on retail and commercial banking in Britain.
DEALBOOK
Denmark Watchdog to Name Banks Flouting Bonus Rules  | Denmark’s financial watchdog will begin naming banks that fail to adhere to bonus restrictions in a crackdown on incentive programs that may have helped fuel the property bubble, Bloomberg News reports.
BLOOMBERG NEWS
Citigroup Plans Expansion into Africa  | Citigroup said it planned to invest in Africa, as it saw a rise in mergers and acquisitions as well as debt and equity capital market deals on the continent, Bloomberg News reports.
BLOOMBERG NEWS
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Blackstone Nears Deal for Minority Stake in Kronos  | The private equity firm Blackstone Group and the Singapore sovereign wealth fund G.I.C. are in talks to acquire a minority stake in Kronos, a resources management software firm, for around $4.5 billion, Reuters writes. The private equity firms Hellman & Friedman and JMI Equity had been exploring an outright sale of Kronos, but rejected takeover bids earlier this month.
REUTERS
British Supermarket Chain Tests Buyout Interest  | Bankers are working on debt financing packages of about $8.35 billion to back a potential sale of Morrison Supermarkets, the British supermarket chain, to private equity firms, Reuters writes.
REUTERS
Trian Fund Renews Push for PepsiCo Breakup  | Nelson Peltz’s Trian Fund Management has turned up the heat on its push for PepsiCo to spin off its beverage unit, The Wall Street Journal writes.
WALL STREET JOURNAL
Quant Funds Feel Investor Pinch  | Investors pulled $4.9 billion from quantitative hedge funds in the last three months of 2013, the most in five years, Bloomberg News reports.
BLOOMBERG NEWS
Man Group Intensifies Search for Acquisition  | The hedge fund Man Group is looking to acquire another asset management business to diversify revenues away from its $12.5 billion flagship managed futures fund, The Financial Times writes.
FINANCIAL TIMES
Einhorn Urges Caution on Earnings  | The hedge fund manager David Einhorn of Greenlight Capital said on Wednesday that the stock market rally in 2013 helped many companies beat analysts’ estimates during the earning season, but that conditions that led to the market surge might not be sustainable, Bloomberg News writes.
BLOOMBERG NEWS
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Why Candy Crush I.P.O. Could be a Dangerous Game  | King Digital, the fast-growing maker of Candy Crush Saga, could be worth nearly $6 billion given the valuations of rivals. But there are considerable risks for investors, writes Dominic Elliott of Reuters Breakingviews.
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Start-Up Site Hires Critic of Wall St. Â |Â Matt Taibbi, who made a name as a fierce critic of Wall Street at Rolling Stone magazine, has joined First Look Media, the latest big-name journalist to leave an established brand to enter the thriving and well-financed world of news start-ups, The New York Times reports.
NEW YORK TIMES
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ZenPayroll Raises $20 Million  | ZenPayroll, a web-based payroll service for small business, has raised $20 million from investors including Kleiner Perkins Caufield & Byers as the company plans aggressive expansion, Fortune reports.
FORTUNE
Sequoia Capital Adds 2 Junior Partners  | The venture capital firm Sequoia Capital has hired a Goldman Sachs banker and a Twitter engineer for its growth equity practice, Fortune writes.
FORTUNE
Online Investment Platform Collects $13 Million  | Kapitall, an online investing platform that aims to make stock trading fun and addictive, announced it had raised $13 million in Series B funding, The Wall Street Journal writes.
WALL STREET JOURNAL
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Undeterred, Fed on Track to Temper Its Stimulus  | Federal Reserve policy makers were surprised by the strength of the United States economy when they met in January, according to minutes of their meeting, The New York Times writes.
NEW YORK TIMES
Federal Lawsuit Accuses For-Profit Schools of Fraud  | Former employees of the Premier Education Group say officials falsified records to keep students enrolled in order to secure government grant and loan money, The New York Times writes.
NEW YORK TIMES
Judge Gives Go-Ahead to $8.5 Billion Bank of America Settlement  | Saliann Scarpulla, a New York State supreme court judge, declined to delay court approval of Bank of America’s $8.5 billion settlement with investors related to the bank’s role in representing shoddy mortgage-backed securities, rejecting a move by American International Group, Reuters writes.
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