[applecore]

It's clear in hindsight that Facebook was (rightly) focused on the enormous upside optionality of the Instagram acquisition.

It wasn't about paying $1 billion for downside protection.

The same is true for the WhatsApp acquisition.

[001sky]

This is, I think, absurd. And investment banker will tell you that eliminating your largest competitor just prior to an IPO will give you a material valuation premium delta. In other words, you are going to price up the company (or not take it down) +/- 5% or greater based on such an external event. Ergo, triggering the event to occur by allocating 1% of the IPO proceeds is basically and arbitrage trading strategy. It has everything to do with things other than the ability to monetize the revenue stream at time T+1. You don't need the (furture) monetization because the deal is already NPV positive as of the close of the order books.

The logic for whatsapp is also similar, if less coldly transactional. The what'sapp TEV is something like 10% of FB value today. Again, these are the orders of magnitude financial advisors will mark-up a valuation for eliminating a major competitive threat. The only assumption really for operation performance is zero NPV.

This reallu only works for companies acquiring strategic threats at still early valuations with paper/zero interest finacing (say, Google buying FB at $7B), tho.