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Facebook said it would pay Instagram a $200 million termination fee if the FTC blocked the deal

The U.S. Federal Trade Commission (FTC) is looking to investigate Facebook's acquisition of photo sharing program Instagram only one week before the social network's massive IPO.

According to the Financial Times, the FTC is launching an investigation regarding Facebook's Instagram acquisition in an effort to identify any clues of anti-competitive practices. The FTC isn't just picking on Facebook, though. The probe is common for any acquisition over $68.2 million because this number is tied to inflation.

Despite the probe being a routine practice, it could potentially hurt Facebook for the time being. The social network cannot use Instagram until the investigation is closed, delaying the mobile services it desperately seeks. In fact, some reports say the probe could take six to 12 months before completion.

Last month, it was reported that Facebook was interested in acquiring Instagram for $1 billion in cash and stock. The move aims to increase Facebook's mobile usage, since the company's amended S-1 filing with the Securities and Exchange Commission on Wednesday mentioned that Facebook revenue will decline as more user's access the site from mobile devices instead of PCs.

The filings also said that the boost in mobile usage has led to a user base that is expanding faster than the number of advertisements provided.

"If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected," said the filing.

In addition to mobile woes, Facebook is looking to go public with its $100 billion initial public offering on May 18 and likely didn't need the extra trouble only one week before establishing its ticker symbol "FB."

Facebook said it would pay Instagram a $200 million termination fee if the FTC blocked the deal.

Source: Financial Times

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Why instagram?
By tastyratz on 5/11/2012 10:58:24 AM , Rating: 2
I don't understand facebook. Why is instagram actually worth that kind of money? From my understanding it is not a unique product or likely easily enforceable by patent. Things like sepia tone filters etc are saturated in prior art with every photo editing program ever.

So why oh why was purchasing a company with a very market saturated selling point and a high likelyhood to crest as another "fad" a good idea. How much longer will people crave these tacky photos?

RE: Why instagram?
By Stuka on 5/11/2012 12:05:51 PM , Rating: 2
Without looking at numbers, I would guess that it is the leading photo app across both iOS and Android. I know it is the only one I have ever heard mentioned in conversation, as well as the only one used to post on my friends' Facebooks other than the webpage itself. If the shleps I know use it, it must have pretty good market share.

RE: Why instagram?
By WalksTheWalk on 5/11/2012 12:08:21 PM , Rating: 2
This is all about Facebook's upcoming IPO. They want to be seen as being the best in all aspects of social media. Their thinking is along the lines of investors seeing Instagram as a threat in the mobile space.

To me Instagram was very over-valued since they have no monetization model and their only value is their numbers os users...which are also mostly all on Facebook.

It is a huge win for the founder and investors of Instagram though! I just hope this doesn't push the venture capital market to either go for the short term big score right away. The tech bubble is back!

RE: Why instagram?
By Flunk on 5/11/2012 12:09:36 PM , Rating: 2
I think it's more about controlling as much of the image sharing market as possible. Instgram is not only an App but an entire sharing platform to itself.

RE: Why instagram?
By MrBlastman on 5/11/2012 12:10:14 PM , Rating: 5
I don't understand either why any nutcase would value Facebook at 100 billion dollars. Oh wait, I do. The investment bankers like Goldman Sachs want it valued at it so they can profit--while going short on the stock as they sell it long to their clients.

RE: Why instagram?
By DBCooper71 on 5/11/2012 2:12:40 PM , Rating: 2
Well, nothing prevents their clients to go short on it too if they think it'll go down in price after the IPO

RE: Why instagram?
By xsilver on 5/13/2012 11:55:42 AM , Rating: 2
If everybody is thinking of shorting the stock on IPO, who is going to buy it on opening day? mums & dads?

RE: Why instagram?
By TSS on 5/14/2012 10:51:13 AM , Rating: 3
You're missing the point. Goldman's telling their clients to not short, or otherwise they wouldn't go long in the first place. If somebody is planning to short why buy the stock itself at all?

It's blatant fraud. We've long since moved past the point that anybody's even trying to hide anything, since by now most people are guillible enough to belive what other people "in charge" say over the facts at hand.

Take a look at this little gem:

Now you tell me if you can trade at that speed. Because you can be damned sure that, once the stock price has dropped below what it's actually worth and goldman has made their money on shorts, they will buy the stock itself at those speeds. And since other companies have trained their bots to buy whatever goldman buys, the price will shoot up again.

But in this world of milliseconds, whoever's closer to the stockexchange's datacenter wins, and goldman has won that race by a mile. They're right next door. So, once the stock has gone up, all they need to do is short their own position right before they sell the stock again. Price goes down, they make money off the stock, and money off the short. Before they rebuy at lows.

Pure and utter genius. It's also fraud on the level of high treason. But still genius, since they have already gotten away with it.

RE: Why instagram?
By One43637 on 5/11/2012 12:18:03 PM , Rating: 2
by tastyratz on May 11, 2012 at 10:58 AM I don't understand facebook. Why is instagram actually worth that kind of money? From my understanding it is not a unique product or likely easily enforceable by patent. Things like sepia tone filters etc are saturated in prior art with every photo editing program ever

As the article mentioned, more people are accessing sites through mobile platforms. That leads to less ad revenue.

I checked it out when it became available on Android. It literally is like a Facebook wall, with just pictures and people <3 your picture or commenting.

RE: Why instagram?
By aharris02 on 5/11/2012 12:20:12 PM , Rating: 2
I don't understand facebook.

It's the intersection of community, product, and interested party. Instagram built a rapid-growth community with high repeat use, and their product happens to coincide with an area which facebook values significantly.

RE: Why instagram?
By WalksTheWalk on 5/11/2012 12:37:33 PM , Rating: 2
These fast growing applications is where the tech bubble is. Any company that grows that fast can be replaced by another and be devalued instantly.

RE: Why instagram?
By Lonyo on 5/11/2012 12:45:38 PM , Rating: 2
They also needed to offer a compelling deal and get it closed ASAP, so they went in high. When the IPO goes through, it will be a lot more difficult to make acquisitions without approvals, so they pushed this one thought IMO.

The actual amount is also possibly tied to the IPO valuation, since it's cash and shares. Since it's partly shares it's not a "real" cost to Facebook's value or cash.

RE: Why instagram?
By Solandri on 5/11/2012 5:11:33 PM , Rating: 4
I don't understand facebook. Why is instagram actually worth that kind of money?

Keep in mind that Zuckerberg pretty much decided all on his own to buy Instagram and how much to pay. The board and other execs were just as surprised as you and me. They're not going to question it for fear of poisoning the IPO, but it's not a good sign for anyone wishing to buy Facebook stock under the assumption that it's a well-run company. Facebook's success can largely be attributed to luck. Zuckerberg hasn't developed the discipline and appreciation for teamwork and input from others that typically comes with struggling to build a company from the ground up. He kinda had it all handed to him on a silver platter.

RE: Why instagram?
By Uncle on 5/12/2012 12:25:19 AM , Rating: 2
The majority of users of Instagram are the teens 15 and under, so if their not using FB, they now will be, its like anything else in the marketing frenzy, get them while their young and you have them for LIFE.

RE: Why instagram?
By DBCooper71 on 5/12/2012 1:39:55 AM , Rating: 2
I disagree, I don't think that Instagram's demographics are that much different from facebook's

RE: Why instagram?
By idiot77 on 5/13/12, Rating: 0
It was all about Zuckerberg's ego
By GatoRat on 5/13/2012 8:45:47 PM , Rating: 2
The Instagram purchase was all about Zuckerberg's ego. Had the board not been about to cash in on the IPO, Zuckergerg would have been fired on the spot and the deal renegotiated.

“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls
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