Instagram CEO had verbally agreed to sell internet firm to Twitter for $525 mn

SAN FRANCISCO: On a late August morning, Kevin Systrom, chief executive of Instagram, took an oath before testifying at a hearing of the California Corporations Department, which sought to determine if Facebook's acquisition of the photo sharing service was in the best interest of Instagram investors. Facebook requested the hearing as a way to speed up the approval of its acquisition.

When asked if his company had received any offers besides Facebook's at the time of the negotiations, Systrom said, "No, we never received any offers," according to transcripts of the hearings. He said Instagram had "talked to other parties, but never received any formal offers from anybody else."

Ivan V Griswold, a lawyer for the state regulators, asked again: "Immediately before the negotiations, did you receive any offers from invest ."

Before he could finish his question, the transcripts show, Systrom cut him off.

"We never received any formal offers or term sheets," Systrom said. 'No.'

Yet the accounts of several people close to Twitter and Facebook, and documents reviewed by The New York Times, contradict the statements he made under oath. Systrom and Mike Krieger, the other founder of Instagram, held several meetings as late as March with top Twitter executives, according to people on both sides of the talks, who requested anonymity because the talks were private and because they were concerned about legal repercussions. These people said the sides had verbally agreed weeks earlier on a price for Instagram of $525 million in cash and shares in Twitter.

Systrom told Twitter on March 20 that he and Krieger had thought about the offer and had decided to 'remain independent'. Less than three weeks later, Twitter found out, along with the rest of the world, that Instagram had agreed to be acquired by Facebook in a $1 billion deal negotiated personally by Facebook's chief executive, Mark Zuckerberg. The deal included $300 million in cash and the rest was in Facebook stock.

Instagram was privately owned by its founders, Systrom and Krieger, who had a majority stake in the company, and several venture capital funds.

The people familiar with the negotiations said Twitter executives were shocked that they had not been given an opportunity to present a counteroffer. They said Twitter was prepared to make higher offers.

Facebook and Systrom declined to comment about the statements made to regulators or the talks with Twitter. GabrielBSE -1.21 % Stricker, a Twitter spokesman, also declined to comment.

Although it might seem unimportant whether wealthy investors made a few million dollars less than they could have, those investors often represent funds that include workers' pensions and mutual funds. The case could also be seen as another example of a large tech company's sidestepping regulators.



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