All Things Digital reports Facebook and Twitter ended several weeks of serious merger talks, in which Facebook was offering to takeover Twitter for $500 million worth of its stock. However, Twitter investors and executives turned down the offer because they believe there's still major growth opportunity for Twitter.
Such a large offer seems ridiculously high for a web service that's used by six million users but generates no income at all and it looks weird that Twitter turned down the bid, but because Facebook isn't trading on the stock market it's hard to judge how much the stock the Internet firm offered to Twitter is really worth. An investment from Microsoft a year ago put a $15 billion valuation on Facebook, but Twitter believes Facebook's true valuation is more in the $5 billion range, which would put the stock offer's true value around $150 million. Twitter wanted more (cash) money and the talks were also shut down because Facebook was concerned about integration and cost.
Twitter needs all the investors it can get, since it has no revenue, although it has been exploring things like charging business customers and adding advertising into the consumer service.
Lack of revenues was an issue for Facebook, said sources, especially related to fees Twitter pays for delivery of its messages to cellphones.
While the issue has been manageable in the U.S., Twitter cut off its SMS support in some international markets this summer because of too-high costs.
But, if Twitter was offered to Facebook’s 120 million users, Facebook execs estimated that it might have to deal with huge SMS fees–up to $75 million annually.
“Facebook has its own revenue-generating challenges,” said one person close to the company. “As much as Twitter would give them a lift in the status area, it was still a worry.”