FTC Launches Probe Into Facebook's $1 Billion Instagram Acquisition
May 11, 2012 10:37 AM
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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
, 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.
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RE: Why instagram?
5/11/2012 12:45:38 PM
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.
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