In order to speed up regulatory approval for Facebook’s acquisition of Instagram, the parties sat down for a Fairness Hearing at the San Francisco offices of the California Department of Corporations. But Kevin Systrom failed to disclose in those meetings that Twitter had also offered to buy Instagram, according to a New York Times report.
Systrom repeatedly told regulators that he had no formal offers from any other companies. But he had verbally agreed to a written acquisition offer from Twitter just weeks earlier, at the price of $525 million. Even after the Facebook deal was announced, Twitter executives repeatedly tried to contact Systrom, the Times reports.
Twitter had been prepared to raise its offer, according to the report.
The purpose of the hearing was to ensure that Instagram was securing the best possible deal for its investors.
“Our role as the State’s securities regulator is primarily to determine whether the transaction is fair to Instagram’s 19 shareholders,” Corporations commissioner Jan Lynn Owen said in a press release issued shortly after the hearing.
It’s not clear that Systrom got the best deal he could for investors. After Facebook’s stock plummeted after its May IPO, the company wound up paying $735 million for Instagram, down from the original $1 billion value of its offer. Twitter’s revenues continue to rise.
Systrom, who had worked on mergers and acquisitions at Google before founding Instagram, was very cautious in his wording to the commission.
Instagram had “talked to other parties, but never received any formal offers from anybody else,” he said.
He later interrupted to regulator’s questions about offers to repeat again that Instagram had had no “formal offers or term sheets.” But, according to the Times, Systrom had been presented with a term sheet in the talks with Twitter, which looked at and returned.
Facebook’s general counsel, Ted Ullyot, also told the commission that none of the company’s competitors were interested in buying it. There was a “lack of interest in acquiring the company expressed by other potential acquirers of the company,” he wrote.