http://techcrunch.com/2012/05/17/facebooks-38-share-price-ma...
> When Facebook agreed to buy Instagram, it said it would pay with $300 million in cash and 22,999,412 shares of stock. That stock is now worth nearly $874 million, creating a $1.17 billion price tag.
I read it as, "Hey, here is this financial tool to consider when selling your company called a stock collar, and here is an example of how using it would have been advantageous." That is a reasonable thing for someone to know.
Duh, you always take risk if part of your deal is in stocks, you dont have to be a professional to know that. Heck, people, including seasoned investors have predicted on average 54 for the stock, so why wouldnt you have taken stock?
Always awesome to see people play Captain Hindsight: http://www.youtube.com/watch?v=cqkI691dxNg
The writer for the story is "A former corporate attorney at Shearman & Sterling, he is a professor at the Michael E. Moritz College of Law at The Ohio State University."
As such he is looking at what structures could be possible instead of what happens actually in negotiation because you have to get agreement on both sides. While of course he could be correct, (we don't know the exact details so we can't rule that out) there is the possibility that those wouldn't have been terms agreed upon even if proposed.
The title of the story was "How Instagram Could Have Cut a Better Deal". Well they also could have cut a better deal by getting twice the amount they got even with the same terms or all in cash, right?
It's ironic as well since to most outside observers Instagram did quite well.
It's hard to imagine that the two sides weren't fully aware of the uncertainties involved during the discussion. These are smart folks. This article seems like it's just an opportunity for the author to show off his knowledge of alternative structures.
The deals are typically upfront payments of several hundred million dollars in combination with milestone payments that often comprise of 50-90% of the total deal's value.
It's a smart move on Facebook's part since it shifts a great deal of risk to the Instagram owners. Facebook does well? Instagram does well. Facebook flounders? So does Instagram.
The fact they got 23M shares of FB is simply delicious gravy on top. This means they get to participate in any upside on FB for free. The only thing that would suck is if they were somehow taxed on the value of FB shares when the deal went down, but I'm not even sure that would occur. I'm sure there's a way to structure the deal so that they wouldn't need to pay taxes until they sell the shares.
Enough said.
"It is a lesson for those who strike deals in the heat of the moment — and perhaps too hastily."
In my opinion the writer is one of the best at detailing corporate deals and making the complexities of investment banking easily understandable for the general public.
Would some kind soul please explain what the author meant by "the market would assign them equally in value?" Thanks.
The buzz was that the owner of the company being bought refused to take any stock and only took cash (smart move), and within a month or two of the purchase, most of the acquired people had already left. The company I had worked for ended up selling the remaining assets for something like 1/40th of what they paid a year later.
Considering my company's stock price tanked on day one of the IPO and continued to go down, the only winner in that deal was the guy who took cash for his company.
