Even though Federal Trade Commission approved Facebook’s acquisition of Instagram last week, the social network was still waiting for a California Department of Corporations “fairness” ruling for the issuance of 23,000 shares to close the deal. It looks like Facebook got the approval, and will be able to close the acquisition of the photo-sharing startup.
Mark Leyes, Director of Communications at California Department of Corporations tell us, “The hearing officer concluded the transaction is fair, just and equitable to shareholders of Instagram.”
The Department issued this statement:
The Department of Corporations determined Wednesday that the terms and conditions of Facebook Inc.’s acquisition of Instagram Inc. are fair to the Instagram shareholders and the Department will issue a permit that authorizes Facebook to issue stock for that acquisition. This determination constitutes the final regulatory approval required for the acquisition. Formal approval by Instagram’s shareholders must still occur.
“Our role as the State’s securities regulator is primarily to determine whether the transaction is fair to Instagram’s 19 shareholders and the proposed exchange of securities meets that test,” said Corporations Commissioner Jan Lynn Owen.
As Brandon Bailey writes, because the stock from the then $1 billion deal is worth much less now (a little over $700 million), the state was focusing on whether the deal was fair to Instagram and its shareholders.
LA Times reporter Jessica Guynn was at the hearing, and reported a number of interesting tidbits . For example, Instagram founder Kevin Systrom said that the photo sharing company was worth “just south of $500 million at the end of March.” He also said that while Instagram was approached by other companies, there were no actual offers or term sheets on the table from Apple or Twitter when Facebook made its offer four months ago.
When asked how Instagram makes money, Guynn reports that Systrom said “That’s a great question…As of right now, we do not.” He also said that in first two years Instagram operated at a net loss of $2.7 million.
Facebook also said that it was “working on photo-sharing app before deciding to buy ‘magic” of Instagram.’ Systrom says that the company was “friendly with Facebook before Easter weekend but that’s when the whirlwind negotiations began.”
Systrom also explained that the the acquisition was the “right thing to do for everyone involved” considering market conditions, competition major players.” And as for why he accepted a combination of stock and cash, he sees “the upside and downside in public markets and still believes in longtime value of Facebook.”
The deal now has to be approved by Instagram’s shareholders, but Systrom seemed confident at the hearing, saying he thinks the shareholders will vote to approve the deal.