1. Do you believe Facebook paid too much for WhatsApp? Why? Be specific in
No, I do believe Facebook did not pay too much for WhatsApp. The amount paid was
justifiable with regard to the market value of WhatsApp at the time of acquisition. While
WhatsApp was acquired at $21.8 billion by Facebook, its market value was $30 meaning that
it was acquired at a less price than its value. This is against the assumption of mergers and
acquisition where it is assumed that a firm should be acquired at its market value.
2. How might existing Facebook shareholders be hurt by the deal What do the
current shareholders have to assume about future earnings growth to benefit from the
deal?
The existing Facebook shareholders might be hurt by the deal because all outstanding
shares of WhatsApp stock were exchanged for Facebook class A common stock. This means
that they were given a higher priority and therefore they would be entitled to earnings first
before other shareholders in class B are considered. Secondly, the deal saw the shares of
Facebook dropping by 5%, meaning that the original shares of Facebook could incur losses if
they were to sell their shares. Finally, increasing the number of shareholders reduces earnings
On the other hand, the current shareholders should assume that the future earnings of
the company will grow or increase for them to benefit from the deal. That is the price stock
should rise above 65.27 per share for them to realize gains on stock.
3. Given the nature of technology, do you believe it is possible for one firm do dominant
given the nature of technology. Technological development and innovations differ from one
another significantly. The resources such as capital, skill personnel, and management
required to implement and maintain different forms of mobile messaging differ, making it
difficult for one firm to control all of them. One firm cannot have all the requirements to
4. Do you believe that Facebook is justified in its aggressive acquisition strategy? What
are the assumptions implicit in this strategy? Are they credible? Why
is that, if Facebook does not take the action, it will be rigged out of the business. For instance
WhatsApp had 450 million monthly active users after 4 years as compared to 150 million
users 4 years after startup. Furthermore it was experiencing 1 million subscribers on a daily
basis. This means that it was going to dominate the market hence rigging out many firms
inclusive of Facebook. The assumption implied in the strategy is the notion that high risk
investments are associated with high returns, therefore investing more to acquire WhatsApp
would result in increased earnings. Besides that, acquisition increases the number of
shareholders in the firm which is assumed that more investors would invest in the company
5. Describe how Facebook has chosen to deal with culture differences that may exist
between it and the firm it acquires? What are the advantages and disadvantages of
Facebook is maintaining culture of the firm acquired by maintaining features and the
way of operation. For example it is diversifying its business model by keeping WhatsApp ad
free with a nominal $1 per year subscriber fee as it was before it was acquired. The advantage
of the system is that it helps to maintain a good rapport not only with the original owners but
also with the shareholders acquired from the firm. However, it is difficult and challenging on
the side of the acquirer to run the firm in the older way. It might attract extra costs which
6. What alternatives to acquisition did Facebook have in dealing with Why was
Facebook had an alternative to enter into a partnership with WhatsApp. This could
have seen the two firms collaborating and working together to render some mobile
messaging services. Acquisition was a preferred option because other firms like goggle had
already shown an intention to acquire it. Besides that, Facebook wanted to increase its
market share.