April 9, 2012 5:42 PM

Facebook To Buy Instagram For $1 Billion In Biggest Acquisition Yet

Posted by Sara Randazzo

With its initial public offering looming, Facebook is bulking up. The social media giant announced Monday that it is buying photo-sharing site Instagram in a cash-and-stock deal valued at $1 billion—the eight-year-old company’s largest acquisition to date.

Facebook filed for a $5 billion initial public offering in early February, tentatively scheduling its shares to begin trading in May. The IPO is likely to be the largest debut of an Internet company ever, and is expected to eclipse Google’s $1.9 billion public listing in 2004 and Netscape’s $2 billion offering a decade before that.

Fenwick West, which is working with Simpson Thacher Bartlett to bring Menlo Park, California-based Facebook public, is also advising on the Instagram purchase. Gregory Roussel, an MA partner in Fenwick’s Mountain View office, confirmed the firm’s involvement Monday.

Roussel says his team completed the entire deal in about 54 hours. Why the urgency? “It’s just the way Facebook does stuff,” Roussel says.

A seven-member team from Orrick, Herrington Sutcliffe in Silicon Valley and San Francisco is representing Instagram, including emerging companies partner Stephen Venuto; MA and private equity partner Mark Seneca; tax partner Steven Malvey; compensation and benefits partner Christine McCarthy; and emerging companies partner Daniel Yost. A firm spokeswoman said the lawyers were not in a position to comment.

Orrick has a long history with Facebook. Many of its lawyers, including Venuto, were lead corporate counsel for the company until Fenwick took over that role following a beauty contest in 2007, sibling publication The Recorder reported at the time.

The Instagram deal is similar to Facebook’s acquisitions of other start-ups, according to Roussel, “but with a couple of extra zeroes on the end.” Fenwick has advised Facebook on some of those smaller deals, including on its recent acquisition of London-based mobile application developer Snaptu for an undisclosed amount (reported to be worth up to $70 million), and in its 2009 acquisition of online sharing service FriendFeed.

The 16-attorney Fenwick deal team also included intellectual property partner Ralph Pais, tax partner Adam Halpern, benefits partner Scott Spector, securities partner Jeffrey Vetter, and antitrust partner Mark Ostrau.

In a Facebook post announcing the deal, CEO Mark Zuckerberg called the transaction “an important milestone” for the company, “because it’s the first time we’ve ever acquired a product and company with so many users.”

San Francisco-based Instagram, which has fewer than 20 employees, has more than 30 million users. (Facebook, meanwhile, says it has more than 845 million active users.) Instagram’s marquee product lets mobile phone users take photos using artistic filters and share them with friends while on the go. The company recently closed a $50 million financing round that valued it at $500 million, according to the New York Times.

Zuckerberg’s announcement continued: “We don’t plan on doing many more of these, if any at all. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together.”

In a blog post announcing the deal on Instagram’s Web site, CEO Kevin Systrom writes that Instagram “is not going away,” and that the mobile phone application “will still be the same one you know and love.” Systrom says in the post that when the company was founded two years ago, he and cofounder Mike Krieger “set out to change and improve the way the world communicates and shares. …Every day that passes, we see more experiences being shared through Instagram in ways that we never thought possible.”

While it’s unclear how Instagram earned its billion-dollar price tag, the public seems pleased with the combination: As of press time, more than 102,000 people had “liked” Zuckerberg’s post announcing the deal.

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