Facebook is buying huge messaging app 

WhatsApp for $12 billion in

stock and $4 billion in cash.

Facebook set aside another $3 billion in restricted stock units to be

granted to WhatsApp’s founders and employees that will vest over the
next four years.

WhatsApp calls itself "a personal real-time messaging network

allowing millions of people around the world to stay connected with
their friends and family."

Basically, it's a text-messaging replacement.

Analyst Benedict Evans says that WhatsApp may actually be bigger

than text messaging. The company says it has more than 450 million
monthly active users worldwide and over 320 million daily active
users. 

The app is free to install, and then users pay $.99 every year.

In a note to users, Jan Koum, WhatsApp’s co-founder and CEO, says:

"Here’s what will change for you, our users: nothing." 

"WhatsApp is on a path to connect 1 billion people," says Facebook

CEO Mark Zuckerberg. "The services that reach that milestone are all
incredibly valuable. I've known Jan for a long time and I'm excited to
partner with him and his team to make the world more open and
connected."

WhatsApp has never had ads (or gimmicks) and Koum says that will
continue.

Koum founded WhatsApp with Brian Acton almost five years ago.

Both are former Yahoo engineers.

After the deal closes, Koum is going to join Facebook as an executive

and become a member of Facebook's board of directors.

WhatsApp has taken little outside investment — only $8 million from

Sequoia. As of December 2013, WhatsApp only employed 50 people,
most of whom are engineers. Their company does all its development
in Russia, where there is cheap talent.

WhatsApp posted a note about acquisition on its company blog:

 Almost five years ago we started WhatsApp with a simple mission:
building a cool product used globally by everybody. Nothing else
mattered to us.

Today we are announcing a partnership with Facebook that will allow

us to continue on that simple mission. Doing this will give WhatsApp
the flexibility to grow and expand, while giving me, Brian, and the rest
of our team more time to focus on building a communications service
that’s as fast, affordable and personal as possible.

Here’s what will change for you, our users: nothing.

WhatsApp will remain autonomous and operate independently. You

can continue to enjoy the service for a nominal fee. You can continue
to use WhatsApp no matter where in the world you are, or what
smartphone you’re using. And you can still count on absolutely no ads
interrupting your communication. There would have been no
partnership between our two companies if we had to compromise on
the core principles that will always define our company, our vision and
our product.

On a personal note, Brian and I couldn’t be more proud to be part of a

small team of people who, in just under five years, built a
communication service that now supports over 450 million monthly
active users worldwide and over 320 million daily active users. They
have helped re-define and revolutionize communication for the 21st
century, and we couldn’t be more grateful.

Our team has always believed that neither cost and distance should
ever prevent people from connecting with their friends and loved ones,
and won’t rest until everyone, everywhere is empowered with that
opportunity. We want to thank all of our users and everybody in our
lives for making this next chapter possible, and for joining us as we
continue on this very special journey.

Facebook also posted about the news on its blog:

 Acquisition accelerates Facebook’s ability to bring connectivity

and utility to the world
 Leading mobile messaging company will continue to operate
independently and retain its brand
 WhatsApp co-founder and CEO Jan Koum to join Facebook
Board of Directors
MENLO PARK, CALIF. – February 19, 2014 – Facebook today
announced that it has reached a definitive agreement to acquire
WhatsApp, a rapidly growing cross-platform mobile messaging
company, for a total of approximately $16 billion, including $4 billion
in cash and approximately $12 billion worth of Facebook shares. The
agreement also provides for an additional $3 billion in restricted stock
units to be granted to WhatsApp’s founders and employees that will
vest over four years subsequent to closing.

WhatsApp has built a leading and rapidly growing real-time mobile

messaging service, with:
Over 450 million people using the service each month;
70% of those people active on a given day;
Messaging volume approaching the entire global telecom SMS
volume; and
Continued strong growth, currently adding more than 1 million new
registered users per day.

The acquisition supports Facebook and WhatsApp's shared mission to

bring more connectivity and utility to the world by delivering core
internet services efficiently and affordably. The combination will help
accelerate growth and user engagement across both companies.

"WhatsApp is on a path to connect 1 billion people. The services that

reach that milestone are all incredibly valuable," said Mark
Zuckerberg, Facebook founder and CEO. "I've known Jan for a long
time and I'm excited to partner with him and his team to make the
world more open and connected."

Jan Koum, WhatsApp co-founder and CEO, said, “WhatsApp's

extremely high user engagement and rapid growth are driven by the
simple, powerful and instantaneous messaging capabilities we
provide. We're excited and honored to partner with Mark and
Facebook as we continue to bring our product to more people around
the world.”

Facebook fosters an environment where independent-minded

entrepreneurs can build companies, set their own direction and focus
on growth while also benefiting from Facebook’s expertise, resources
and scale. This approach is working well with Instagram, and
WhatsApp will operate in this manner. WhatsApp’s brand will be
maintained; its headquarters will remain in Mountain View, CA; Jan
Koum will join Facebook’s Board of Directors; and WhatsApp’s core
messaging product and Facebook’s existing Messenger app will
continue to operate as standalone applications.

Upon closing of the deal, all outstanding shares of WhatsApp capital

stock and options to purchase WhatsApp capital stock will be
cancelled in exchange for $4 billion in cash and 183,865,778 shares of
Facebook Class A common stock (worth $12 billion based on the
average closing price of the six trading days preceding February 18,
2014 of $65.2650 per share). In addition, upon closing, Facebook will
grant 45,966,444 restricted stock units to WhatsApp employees
(worth $3 billion based on the average closing price of the six trading
days preceding February 18, 2014 of $65.2650 per share). As of
February 17, 2014, Facebook had 2,551,654,996 Class A and B shares
outstanding plus approximately 139 million dilutive securities
primarily consisting of unvested RSUs. The Class A common stock and
RSUs issued to WhatsApp shareholders and employees upon closing
will represent 7.9% of Facebook shares based on current shares and
RSUs outstanding.

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 $1 billion in cash and to issue to WhatsApp a
number of shares of Facebook’s Class A common stock equal to $1
billion based on the average closing price of the ten trading days
preceding such termination date.

Facebook was advised by Allen & Company LLC and Weil, Gotshal &
Manges LLP; and WhatsApp was advised by Morgan Stanley and
Fenwick & West, LLP.

Here's a blog post from Whatsapp's only investor, Sequoia Capital:

Earlier today, Facebook announced its acquisition of WhatsApp for

$16 billion. It’s a spectacular milestone for the company’s co-founders
Jan Koum and Brian Acton, and their remarkable team.

From the moment they opened the doors of WhatsApp, Jan and Brian
wanted a different kind of company. While others sought attention,
Jan and Brian shunned the spotlight, refusing even to hang a sign
outside the WhatsApp offices in Mountain View. As competitors
promoted games and rushed to build platforms, Jan and Brian
remained devoted to a clean, lightning fast communications service
that works flawlessly.

This approach has served WhatsApp well and its users better.
WhatsApp has done for messaging what Skype did for voice and video
calls. By using the Internet as its communications backbone,
WhatsApp has completely transformed personal communications,
which was previously dominated by the world’s largest wireless
carriers.

For the past three years, it’s been our privilege to work shoulder-to-
shoulder with Jan and Brian as their close business partner and
investor. It’s been a remarkable journey, and we could not be happier
for these talented underdogs whose unshakeable beliefs and maverick
natures epitomize the spirit of Silicon Valley.

Those less familiar with WhatsApp and its wonderful product will
marvel at how a young company could be so valuable. Many of those
people will be in the U.S. because there’s no other home grown
technology company that’s so widely loved overseas and so under
appreciated at home. WhatsApp reminds us of other companies that
we partnered with — like PayPal, and YouTube — whose founders
chose a similar path to Jan and Brian. Today PayPal and YouTube are
both household names around the world. Tomorrow the same will
hold true for WhatsApp.

Here are four numbers that tell the story of WhatsApp: 450, 32, 1 and
0.

450. WhatsApp has more than 450 million active users, and reached
that number faster than any other company in history. It was just nine
months ago that WhatsApp announced 200 million active users,
which was already more than Twitter. Every day, more than a million
people install the app and start chatting, and they remain more
engaged with WhatsApp than on any other service. Incredibly, the
number of daily active users of WhatsApp (compared to those who log
in every month) has climbed to 72%. In contrast the industry standard
is between 10% and 20%, and only a handful of companies top 50%.

WhatsApp has tapped into our insatiable appetite for personal

communication. It is part of a chain that over the past 150 years
reaches from the Pony Express, Telegraph and airmail letter to the
telephone and email. WhatsApp has become today’s flag-bearer for
personal communications.

Jan and Brian’s product caters to those you care about most: the
people in the address book on your phone. WhatsApp is simple,
secure, and fast. It does not ask you to spend time building up a new
graph of your relationships; instead, it taps the one that’s already
there. Jan and Brian’s decisions are fueled by a desire to let people
communicate with no interference.

32. Even by the standards of the world’s best technology companies,

WhatsApp runs lean. With only 32 engineers, one WhatsApp
developer supports 14 million active users, a ratio unheard of in the
industry. (WhatsApp’s support team is even smaller.) This L E G E N
D A R Y crew has built a reliable, low-latency service that processes 50
billion messages every day across seven platforms using Erlang, an
unusual but particularly well-suited choice. All that, while maintaining
greater than 99.9% uptime, so users can rely on WhatsApp the way
they depend on a dial-tone.

1. Jan keeps a note from Brian taped to his desk that reads “No Ads!
No Games! No Gimmicks!” It serves as a daily reminder of their
commitment to stay focused on building a pure messaging experience.

This discipline is reflected in WhatsApp’s unconventional approach to

business. After one year of free use, the service costs $1 per year —
with no SMS charges. This can save users trapped in expensive data
plans up to $150 per year.

It’s easy to take this novel model for granted. When we first partnered
with WhatsApp in January 2011, it had more than a dozen direct
competitors, and all were supported by advertising. (In Botswana
alone there were 16 social messaging apps). Jan and Brian ignored
conventional wisdom. Rather than target users with ads — an
approach they had grown to dislike during their time at Yahoo — they
chose the opposite tack and charged a dollar for a product that is
based on knowing as little about you as possible. WhatsApp does not
collect personal information like your name, gender, address, or age.
Registration is authenticated using a phone number, a significant
innovation that eliminates the frustration of remembering a username
and password. Once delivered, messages are deleted from WhatsApp’s
servers.
It’s a decidedly contrarian approach shaped by Jan’s experience
growing up in a communist country with a secret police. Jan’s
childhood made him appreciate communication that was not bugged
or taped. When he arrived in the U.S. as a 16-year-old immigrant
living on food stamps, he had the extra incentive of wanting to stay in
touch with his family in Russia and the Ukraine. All of this was top of
mind for Jan when, after years of working together with his mentor
Brian at Yahoo, he began to build WhatsApp.

Facebook has assured Jan and Brian that WhatsApp will remain ad
free and they will not have to compromise on their principles. We
know that Jan, as a new member of Facebook’s board, will continue to
champion the rights of WhatsApp users.

0. There may be no greater testament to the viral nature of WhatsApp

than the fact that the company has accomplished all this without
investing a penny in marketing. Unlike their smaller competitors, it
hasn’t spent anything on user acquisition. The company doesn’t even
employ a marketer or PR person. Yet like the world’s greatest brands,
it’s created a strong emotional connection with consumers. All of
WhatsApp’s growth has come from happy customers encouraging
their friends to try the service.

***

There are many reasons to be excited about the next phase of

WhatsApp’s development. Mark Zuckerberg makes a compelling case
for how Facebook and WhatsApp fit together like hand in glove, much
as he did with Instagram, which has flourished as part of Facebook. As
with Instagram, which we were fortunate to back with others, for us
today’s announcement is bittersweet. Our excitement about the
opportunities that lie ahead for WhatsApp and Facebook is tinged with
a little sadness, and a lot of nostalgia, for the pleasure and satisfaction
that all of us at Sequoia have felt working with the company over the
past three years.

From the time WhatsApp had fewer than ten users, Jan and Brian
have been committed to building an enduring service. Now, on their
way to a billion, they are just getting started.

— Jim Goetz, on behalf of Sequoia

Here is Facebook's filing with the SEC:

On February 19, 2014, Facebook, Inc. (“Parent”) entered into an
Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”) with Rhodium Acquisition Sub II, Inc., a Delaware
corporation and wholly owned (in part directly and in part indirectly)
subsidiary of Parent (“Acquirer”), Rhodium Merger Sub, Inc., a
Delaware corporation, a direct wholly owned subsidiary of Acquirer
(“Merger Sub”), WhatsApp Inc., a Delaware corporation
(“WhatsApp”), and Fortis Advisors LLC, as the stockholders’ agent.

Pursuant to the terms of the Merger Agreement, Merger Sub will

merge with and into WhatsApp (the “First Merger”), and upon
consummation of the First Merger, Merger Sub will cease to exist and
WhatsApp will become a wholly owned subsidiary of Acquirer. The
surviving corporation of the First Merger will then merge with and
into Acquirer, which will continue to exist as a wholly owned (in part
directly and in part indirectly) subsidiary of Parent. Upon
consummation (the “Closing”) of the transactions contemplated by the
Merger Agreement (the “Merger”), all outstanding shares of
WhatsApp capital stock and options to purchase WhatsApp capital
stock will be cancelled in exchange for an aggregate of 183,865,778
shares of Parent’s Class A common stock (valued at $12 billion based
on the average closing price of the six trading days preceding February
18, 2014 of $65.2650 per share (“Specified Price”)) and $4 billion in
cash to existing WhatsApp security holders, subject to certain
adjustments such that the cash paid will comprise at least 25% of the
aggregate transaction consideration. In addition, upon Closing, Parent
will grant 45,966,444 restricted stock units to WhatsApp employees
(valued at $3 billion based on the Specified Price).

The Merger Agreement contains customary representations,

warranties and covenants by Parent and WhatsApp. A portion of the
aggregate consideration will be held in escrow to secure the
indemnification obligations of the WhatsApp securityholders. The
Closing of the Merger is subject to customary closing conditions,
including regulatory approvals. The Merger is anticipated to close later
in 2014. Upon Closing, Jan Koum, WhatsApp’s co-founder and CEO,
will become a member of Parent’s board of directors. In addition,
Parent has agreed to file a Registration Statement on Form S-3
covering the resale of the shares of the Company’s Class A common
stock to be issued to the stockholders of WhatsApp.

Either Acquirer or WhatsApp may terminate the Merger Agreement if

the Closing has not occurred on or before August 19, 2014 (or August
19, 2015 if, as of August 19, 2014, all closing conditions have been
completed except for the receipt of certain regulatory approvals). 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 Acquirer to
pay or cause to be paid to WhatsApp a fee of $1.0 billion in cash and to
issue to WhatsApp a number of shares of Parent’s Class A common
stock equal to $1.0 billion (based on the average closing price of the
ten trading days preceding such termination date).
Parent intends to issue the shares of Class A common stock described
herein in reliance upon the exemptions from registration afforded by
Section 4(2) and Rule 506 promulgated under the Securities Act of
1933, as amended.

The foregoing summary of the Merger Agreement and the transactions

contemplated thereby do not purport to be complete and is subject to,
and qualified in its entirety by, the full text of the Merger Agreement,
which will be filed as an exhibit to Parent’s Quarterly Report on Form
10-Q for the quarter ending March 31, 2014.

This Current Report on Form 8-K may be deemed to contain forward-

looking statements, which are subject to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, including the
expected completion of the transactions contemplated by the Merger
Agreement and the time frame in which this will occur. Statements
regarding future events are based on the parties’ current expectations
and are necessarily subject to associated risks related to, among other
things, regulatory approval of the acquisition of WhatsApp or that
other conditions to the Closing may not be satisfied, the potential
impact on the business of WhatsApp due to the announcement of the
acquisition, the occurrence of any event, change or other