Home Technology Instagram Merger With Facebook (FB) Receives Approval From California

Instagram Merger With Facebook (FB) Receives Approval From California

When you purchase through our sponsored links, we may earn a commission. By using this website you agree to our T&Cs.

Facebook Inc (NASDAQ:FB) received the approval of the California Department of Corporations to issue stock to complete its merger transaction with Instagram Inc., a photo sharing application developer.

Instagram Merger With Facebook (FB) Receives Approval From California

The California Department of Corporations found Facebook Inc (NASDAQ:FB)’s cash and stock acquisition deal with Instagram to be “fair, just, and equitable” during a hearing in San Francisco today.

Last April, Instagram accepted the offer of Facebook Inc (NASDAQ:FB) to acquire the company for $300 million in cash and approximately 23 million shares. The valuation of the transaction was estimated $1 billion at the time when Facebook Inc (NASDAQ:FB) stock price was $31 per share.

The total amount of the transaction is below the original price, after Facebook’s stock went down significantly since Facebook’s now infamous initial public offering (IPO). Facebook closed today at $19.10, nearly a 39% drop from the valuation of the social media giant at the time of the Instragram agreement. The value of the Instagram acquisition depreciated to more than $750 million instead $1 billion, which was the original purchase price of Instagram. Some quick math explains the $750 million valuation of Instagram. 23 million shares of Facebook are now worth approximately $440 million using a share price of $19.10. Add in the $300 million in cash, and you arrive at $740 million.

Facebook’s stock price during its initial public offering (IPO) was $38 per share. Its IPO suffered technical glitches, which drove the stock value down and resulted in lawsuits.

Instagram Chief Executive Officer Kevin Systrom said he understood the fluctuations of the public markets. According to him, the media created the idea of a $1 billion dollar valuation of his company. Systrom emphasized that his team negotiated a cash and stock transaction with their counterparts in the social networking giant, led by its CEO Mark Zuckerberg.

Systrom said, “I’ve been taught throughout my life to realize there’s an upside and downside to all public markets. We still believe firmly in the long-term value of Facebook.”

Facebook Inc (NASDAQ:FB) also received a green light from the Federal Trade Commission to proceed with its merger with Instagram. The commissioners of the agency voted unanimously, approving the deal after conducting a “careful and thorough” antitrust review.

According to the report from the Wall Street Journal, the transaction was highly scrutinized by government regulators, because the acquisition cost is large, considering that Instagram was a new company with a handful of employees and lacks revenue.

Systrom admitted to the state regulators during the hearing that Instagram is not generating revenue, and it is more focused on developing “something people really loved.”

California is one of the six states that allow companies to get approval to issue stocks, instead of getting approval from the Securities and Exchange Commission (SEC).

Our Editorial Standards

At ValueWalk, we’re committed to providing accurate, research-backed information. Our editors go above and beyond to ensure our content is trustworthy and transparent.

Marie Cabural

Want Financial Guidance Sent Straight to You?

  • Pop your email in the box, and you'll receive bi-weekly emails from ValueWalk.
  • We never send spam — only the latest financial news and guides to help you take charge of your financial future.