Insider News About Facebook's Bid to Take Over Twitter

What happens when Microsoft values your stock at $15 billion, you yourself say it is worth $8-9 billion but you let your employees sell stock at internal company valuations of $2-4 billion?

Well, the answer is simple: when you try to takeover another company and want to pay with stock options, you fail. I am here talking about Facebook, which was trying to take over Twitter.

Now, I must have seen this coming a while ago. There is no market for Facebook's stock given the fact that facebook is a private company. A few friends in the Big Apple told me that facebook was trying to take over Twitter, the rapidly growing personal blogging network, for $500 million.

At first, when Carlo Friedman, a consultant involved with Twitter, told me this; I was saying to myself that this may be a good deal for Twitter. $500 million is good money for a startup. I told myself that soon twitter.com may be bearing the Facebook seal of proprietorship. Not that it mattered to me anyway.

In all honesty, I have no idea what Facebook's net worth is at this point in time - my amazing maths skills fail me as soon as you cross the billion dollar threshold. What is the difference between $8 billion, $15 billion and so on? All I know is that with these figures, you are talking about a Fortune 500.

However, these subtle differences mattered to the company directors and investors of Twitter. Because, of course, Facebook is not a cash cow like Myspace. It would not be shelling out $500 million in cash - instead the deal was going to be $100 million in green notes, and the remaining $400 million would be in stocks.

But Facebook's stock value is a big controversy, and Facebook's revenue is limited by its desire to incorporate less ads which are more targeted and less obtrusive. So, you are the 4th most visited website on the planet, your userbase is loyal and your potential for growth is unlimited, and best of all, you are a private company. Problem is, you don't generate that much cash as your current position in the web hierarchy would command. This means, in essence, that depending on the metrics used for valuation, your net worth may be as low as $2 billion and as high as $18billion. That's a pretty big margin of uncertainty. And uncertainty, as most entrepreneurs know, is a bane for business.

Twitter was not convinced with facebook's deal, as Peter Thiel, a facebook investor, puts it: "The deal would have to be done with facebook stock. And you have to figure out how much the stock is worth." I tried talking to some friends with inside connections in Twitter, and they told me that the reaction on Twitter's side was that Facebook's stock value was too overshadowed with this veil of uncertainty, and Twitter was not convinced, at least yet.

So, the deal did not go through. Neither party really emerged as a loser, because none of these two companies are publicly traded, and investor confidence is still strong in both of them. Although Twitter does not generate money at this stage, it has grown from 800,000 unique visitors to over 6 million unique visitors since last year; while Facebook's money-making potential is still to be unleashed, as Thiel told a friend of mine. "There's no reason to think that we couldn't do $1bllion a year in sales if we turned on all the dials. That's about what MySpace does."

The good news is that the two companies have not completely shut down all negotiations. Richards Anthony, a close friend of mine and with insider access to Twitter and who also had interests in Facebook, told me that "We are always interested. There is a conscious dialogue. Although the meat is off the table, there's more cooking on the grill. The only thing is we don't know yet when it will be cooked!"