Facebook Inc. (FB) investors who pushed the company’s shares to a record after it unveiled the $19 billion deal for WhatsApp Inc. would be well served to remember — every Internet takeover of more than $10 billion has flopped.
Last week’s proposed purchase would be the biggest Web acquisition in more than a decade and only the fifth ever to top that threshold, according to data compiled by Bloomberg. That puts it in the same category as AOL’s merger with Time Warner and Terra Network SA’s takeover of Lycos, which later resulted in multibillion-dollar writedowns.
The history of large Internet deals is littered with buyers who paid lofty valuations for targets —Facebook is bestowing on WhatsApp a multiple typically reserved for companies developing life-saving drugs — only to see their value erased. Facebook Chief Executive Officer Mark Zuckerberg, who said this week that WhatsApp is worth even more than the $19 billion he’s spending, is betting this time is different. His take: WhatsApp will grow beyond 450 million active messaging accounts to justify the investment from the world’s biggest social-networking service.
“History shows that when you pay $19 billion, there’s an opportunity to have overpaid by $19 billion,” said Jay Ritter, a finance professor at the University of Florida. “A lot of things have to go right. And there’s certainly a price point at which even if things go right, it’s not going to be a good investment.”
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