Facebook Nearly Added Twitter To Friends List

It seems the world's most popular social networking site was just moments away from acquiring another -- and few of us ever knew about it.  A Facebook executive has revealed that a planned takeover of Twitter only fell apart because of a disagreement over stock valuations.

Despite the rather miserable economy, Facebook is still looking to buy out other firms and says it could make a billion dollars a year from advertising.

Peter Thiel, a venture capitalist who put up some of the money behind Facebook, discussed the deal in a Business Week interview. (Thiel was discussing the business aspects of the company and didn't touch on the recent terms and conditions controversy.)

$500 Million Offer for Twitter

It's the first time anyone from Facebook has confirmed the takeover talks, though some insiders suspected the company was attempting to buy out rival site Twitter. There certainly would have been a logic to the deal: Twitter consists almost entirely of users posting short messages, a similar feature to the 'status update' facility in Facebook. Bringing the two together would have made things simpler for users and expanded the overall customer base, thus boosting potential ad rates.

Thiel says the two sides agreed a $500 million purchase price and that Twitter would receive the payment in Facebook stock rather than cash -- which is a common solution in large takeovers where there simply isn't the money available for a buyout.

The Price Was Not Right

The problem was deciding how much Facebook stock was actually worth: the company has not yet gone public, so there's no stock market price. There's been a wide variation: Microsoft bought some Facebook stock a couple of years ago which was the equivalent of the entire company costing $15 billion, but during the Twitter talks, Facebook said the company was worth around $8 billion.

That didn't fly with Twitter bosses who believed, based on how much Facebook employees were selling stock for privately, that the firm was worth half this amount. That led to a disagreement over how many shares Twitter would get to make up the $500 million, and the deal collapsed. (Source: thenextweb.com)

Thiel says Facebook is still interested in buying out other companies, but suspects disagreements over the value of Facebook stock may cause similar problems in the future. He also says the site has huge potential for advertising, backing fellow investor estimates that it could sell a billion dollars worth of adverts each year.

However, the firm is concerned, surprisingly, that doing so would mean placing so many ads on each page that it deterred users and became counter-productive. (Source: businessweek.com)