Social Media Bubble: Facebook to Buy WhatsApp for 19 Billion Dollars

There?s no doubt that pressure is rising in the social media balloon ? the latest news come from Facebook, which signed an agreement to spend a good portion of its balance sheet to acquire WhatsApp, a very popular messaging app.

WhatsApp was seen as one of threats to Facebook as the application gained popularity over its simplicity and fast performance on the widest array of smartphones on the market. The app proved extremely popular in emerging markets where most users cannot afford an extensive data usage plan or face high SMS text costs.

Under the terms of acquisition, the overall cost to Facebook is set at massive 19 billion US dollars divided in just 4 billion in cash, 12 billion in common stock and additional 3 billion in restricted stock. The restricted stock comes with a standard time expiry clause, meaning the founders and employees of the company need to stick around for some time in order to get the extra three billion dollar payday. Even though majority of media reported this as a 16 billion dollar acqusition, the additional $3 billion commitment is still a very big part of the deal. 

The deal is subject to various approvals, and If something would happen to prevent the acquisition, Facebook would have to pay a hefty good bye letter – $1 billion in cash. However, given the amount of money WhatsApp employees and executives have on the table (4 billion cash at the day of acquisition), it is hard to imagine that two friends (Mark Zuckerberg and Jan Koum know each other well) would endanger this acquisition.

The question now remains – will Facebook leave WhatsApp alone (like they did with Instagram), or will the company start modifying the popular chat service. All we know is that 19 billion dollars is a nice chunk of money for getting more data out of those 450 million (and growing) users, who all have to upload their phone contacts to WhatsApp servers.