Instagram used Twitter to make Facebook pay more (rumor)

Between Facebook and Twitter, Instagram reportedly preferred being acquired by the former. When it came to increasing its valuation though, Instagram used Twitter to make Facebook pay more.
Written by Emil Protalinski, Contributor

Maybe April 2012 should be referred to as the month of Instagram rumors. Two weeks ago, a rumor suggested that Facebook beat Twitter to Instagram.

Instagram co-founder and CEO Kevin Systrom first got an offer and a term sheet from Twitter, then doubled his company's valuation by striking a deal with Facebook co-founder and CEO Mark Zuckerberg. This new rumor is different than the last one in at least one significant way: the previous one said Zuckerberg called Systrom.

Systrom orchestrated what was referred to as "a three-way chess match between Instagram, Twitter, and Facebook" by multiple people knowledgeable with the deal cited by VentureBeat. Twitter supposedly made an offer in the hundreds of millions of dollars range, but Instagram did not sign the term sheet. Systrom then supposedly went to Zuckerberg, who bid just to block the Twitter deal. Systrom preferred Facebook anyway (product and vision alignment was better); he apparently just used Twitter to increase his company's valuation.

Earlier this month, Facebook announced plans to acquire Instagram for approximately $1 billion in cash and stock, although Instagram reportedly wanted $2 billion from Facebook. The price ended up being much more flexible: Facebook paid $300 million in cash and 23 million shares for Instagram, and there's a $200 million break-up fee if the deal doesn't go through.

Facebook is expecting to close the Instagram acquisition this quarter. If Facebook ends up going public at more than $75 billion, it will pay more than $1 billion for Instagram. That's certainly possible, given that the last Facebook valuation on secondary markets was $102.8 billion, the highest yet. Then again, Facebook's just-released Q1 2012 financials weren't very good.

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