Even If The Deal Falls Through, Facebook Will Still Pay WhatsApp $US2 Billion

Facebook has agreed to buy popular messaging app WhatsApp for an astounding $US19 billion: $12 billion in stock, and $US4 billion in cash, plus another $3 billion in restricted stock units to be granted to WhatsApp’s founders and employees that will vest over the next four years.

That’s a deal that pretty much no sane person could say no to.

But this little tidbit indicates that Facebook still needed to sweeten the pot. If the merger falls through, particularly if regulators forbid it, Facebook will still pay WhatsApp $US2 billion: $US1 billion in cash and $US1 billion in stock.

From the press release:

In the event of termination of the Merger Agreement under certain circumstances principally related to a failure to obtain required regulatory approvals, the Merger Agreement provides for Facebook to pay WhatsApp a fee of $US1 billion in cash and to issue to WhatsApp a number of shares of Facebook’s Class A common stock equal to $US1 billion based on the average closing price of the 10 trading days preceding such termination date.

That’s a pretty unusual stipulation. It’s very rare, however, for regulators to out-and-out block a merger.

Our thoughts as to why WhatsApp wanted that as part of the deal: If WhatsApp users flee from the app or stop downloading it while the merger is pending, and the deal falls through, the WhatsApp founders didn’t want to be left with a shattered business.

WhatsApp, which lets people send messages, pictures and videos, has been seen as the poster child as an alternative to Facebook, in part because it vowed that it wouldn’t sell ads.

In December, when it announced that it had reached more 400 million global users, Forbes Parmy Olson described it as being “at the forefront of a global phenomenon in which mobile services appear to be pulling users away from traditional social networks.”

WhatsApp users who dislike Facebook’s ads, and the amount of data it collects on each user, may not be terribly happy that WhatsApp is going to be part of Facebook.

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