Facebook Closes Devalued Instagram Acquisition

By Chris Preimesberger  |  Posted 2012-09-06

Five months after it announced the acquisition of photo-sharing application provider Instagram for a little more than $1 billion, Facebook closed the deal Sept. 6 for $730 million.

Facebook in April offered $300 million in cash and 23 million shares of common stock for Instagram, making the deal worth $1.174 billion at the time. Facebook subsequently went public in May. Since then, however, the stock has dropped in value from its debut at $38 per share to $19 per share, reducing the value of the transaction to $730 million.

At the time of the agreement, neither Facebook nor Instagram included a specification for a floating share-exchange ratio; otherwise, Instagram might have been able to earn much closer to $1 billion in the transaction.

Two-year-old, San Francisco-based Instagram remains one of the most popular photo-sharing social-networking services. In a separate blog post Sept. 6, Instagram announced that more than 5 billion photos have been shared through its mobile apps.

Both companies confirmed the deal in blog posts. Facebook Vice President of Engineering Mike Schroepfer and Instagram CEO and co-founder Kevin Systrom both wrote that Instagram would continue to develop and evolve its own product, despite new ownership.

"As we said from the beginning, we are committed to building and growing Instagram independently," Schroepfer wrote. "Instagram will continue to serve its community, and we will help Instagram continue to grow by using Facebook's strong engineering team and infrastructure. We also can't wait to work with the talented Instagram team to improve the mobile experience."

Systrom wrote, "The Instagram app will still be the same one you know and love. You'll still have all the same people you follow and that follow you. You'll still be able to share to other social networks. And you'll still have all the other features that make the app so fun and unique."

Instagram has about 40 million active users. Facebook CEO and co-founder Mark Zuckerberg has said that this was the first--and possibly the last time--his company would acquire a company with so many users.

"We don't plan on doing many more of these [acquisitions], if any at all," he blogged at the time of the acquisition.

Setting some minds at ease, Zuckerberg explained that Instagram users will have the option to not share Instagram photos on Facebook, and the ability to "have followers and follow people separately from your Friends on Facebook."

"We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience," Zuckerberg said. "Facebook understands what's important to the Instagram experience, and that we will try to learn from Instagram's experience and build similar features into its programs, while also helping Instagram continue to grow by using Facebook's strong engineering team and infrastructure."

On April 6, Instagram opened its world to Android in addition to Apple iOS users. In half a day, the Android app was downloaded by more than 1 million users.

eWEEK Senior Writer Michelle Maisto contributed to this story.

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