Facebook to Buy Messaging Start

Facebook said on Wednesday that it would acquire WhatsApp, a messaging start-up, for $16 billion in cash and stock.

The eye-popping price is Facebook's largest acquisition by far and represents a new height in the frenzy to acquire popular technology start-ups.

Facebook will pay $4 billion in cash and $12 billion worth of Facebook shares 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.

By any measure, Facebook is paying a steep price for a mobile application that is widely used internationally but less known in the United States. Including the restricted stock units, the acquisition total amounts to $345 million for every one of the company's 55 employees.

WhatsApp has more than 450 million monthly users, with 70 percent of those active on a given day. By that measure, Facebook is paying about $40 per user.

'WhatsApp is on a path to connect one 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's chief executive.

Mr. Koum and Brian Acton, two former Yahoo executives, founded WhatsApp in 2009.

Unlike traditional business leaders, the two founders spent most of their time throughout the day keeping the service running smoothly. Mr. Acton focused on the servers, while Mr. Koum looked at the overall product and made sure it looked and acted the same consistently across different devices.

Mr. Koum and Mr. Acton have said they want to make messaging accessible to anyone, regardless of what phone they own, where they live or how much money they make. They have also been adamant about refusing to sell advertising - they say that ads detract from intimate conversations.

WhatsApp received about $10 million in funding two years after the company was founded. It quickly became profitable.

Facebook, meanwhile, has struggled to gain traction in messaging.

Mr. Zuckeberg tried to acquire SnapChat last year for a reported $3 billion, but SnapChat turned down the offer.

While Facebook Messenger, the company's chat platform, is popular with users, recent attempts to create its own direct messaging service have failed.

Facebook Poke, which was developed to try and compete with SnapChat, the ephemeral messaging platform where messages vanish after being viewed for up to 10 seconds, has seen little attention after users didn't engage with the app.

Another new feature added to Instagram last year, called Instagram Direct, allows people to message each other on the service but this seems to have gained little traction with users, too.

With WhatsApp, that Facebook will now own a huge platform.

The two companies have been in talks for two years. In the spring of 2012, Mr. Zuckerberg first reached out to Mr. Koum. The two men met at a coffee shop in Los Altos, Calif. and spoke for an hour, then took a walk for another hour and a half, said people briefed on the matter.

Later that year, they began a series of dinners, and continued to discuss messaging and communication services during meals and walks in the rolling hills of Silicon Valley, these people said.

On Feb. 9, Mr. Zuckerberg asked Mr. Koum over to dinner at his home, where he formally proposed a deal. Mr. Koum thought about it for a few days, and the two men met again last Friday.

Mr. Koum came over to Mr. Zuckerberg's home, crashing the dinner Mr. Zuckerberg was sharing with his wife, Priscilla Chan. The two men entered into negotiations, eating a plate of chocolate covered strawberries intended for Ms. Chan, the people briefed on the matter said.

By last weekend's end, the two men had struck a deal.

Corporate advisers played some role as well. Michael Grimes, the Morgan Stanley banker who orchestrated Facebook's flawed initial public offering in 2012, was this time on the other side of the table, advising WhatsApp on its sale.

Facebook was advised by Allen & Company and received legal advice from Weil Gotshal & Manges, while WhatsApp was advised by Morgan Stanley and received legal advice from Fenwick & West.

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

In after-hours trading, shares of Facebook were down more than 4 percent.