By Michael Malpass
According to a report in the New York Times, weeks before selling his photo sharing application to Facebook Inc. for $1 billion, Instagram CEO, Kevin Systrom, had talked to Twitter Inc. in March about selling it for $525 million. However, in August Mr. Systrom said under oath at a hearing of the California Corporations Department that he had never received any offers besides Facebook’s. Facebook had requested the hearing in order to speed up its acquisition. Mr. Systrom was asked three times if he had received any inquiries from third parties about a possible acquisition of Instragram, and each time Mr. Systrom said he had not.
However, the New York Times has revealed that Mr. Systrom and Mike Krieger, the other founder of Instagram, held several meetings with Twitter executives where they came to a verbal agreement to sell Instagram for $525 million in cash and Twitter shares. On March 20, Mr. Systrom went back on the deal, saying he and Mr. Krieger preferred to “remain independent.” It was less than three weeks later that Instagram announced it had been acquired by Facebook for $1 billion through a personal meeting with Facebook’s CEO himself, Mark Zuckerberg. They agreed to a deal consisting of $300 million in cash and the rest in Facebook stock.
According to the New York Times, Twitter executives were prepared to make higher offers and were shocked they were not given the opportunity to do so. It is possible Instagram investors lost out on millions of dollars due to Mr. Systrom’s private deal with Mr. Zuckerberg. The deal with Facebook closed at only $735 million in early September, because Facebook investors thought the social network’s revenue growth prospects looked weak, causing its stock to plunge. Twitter on the other hand is a privately owned company expected to make $1 billion in revenue next year. If Instagram had been sold to Twitter, its investors might have made millions of more dollars. According to Reuters, relations between Instagram and Twitter have soured. Instagram recently suspended a feature that allowed users to share their photos through Twitter, while Twitter has introduced its own photo filters to compete with Instagram.