Oculus Acquisition

Acquisition

In march 25th, 2014 Facebook announced the acquisition of an enterprise named

Oculus, which this strategy is willing revolutionize the social network industry.
Facebook has been acquiring enterprises which help to improve the experience of
the users using its social platform in face recognition, games, quality image and
others. Nevertheless, this acquisition is different from the pattern of Facebook
scope which it might jeopardize the stock prices due to the uncertainty of this
Acquisition.
Before going into deeper investigation about this acquisition, lets have a
brief profile of what is Oculus. Oculus is an enterprise which develops technology
for virtual reality like 3-D video games. This acquisition seems to wander everyone
because it is quite off from the Facebook core business.
The deal for the acquisition of Oculus was about 2 billion US dollars, which
was made by cash and Facebook stocks. The acquisition was announced on
March but until July of the same year the transaction was completed. The
transaction was about $400 million in cash and issued 23 million shares of our
Class B common stock and $60 million in cash will be payable contingent upon the
completion of certain milestones (Report, 2014). The stock price was fixed taking
as a base the average from the 20 trading days preceding March 21 which was
$69.35.
As we can see on the following chart, there are other factors that could
affect the total amount of the transaction. It was expected to be 2 billion but at the
end the purchase consideration was $1,853.

The capital structure of Facebook will be affected because of the use of

existing stocks and cash for the acquisition affecting its assets as well as the
liabilities, debt will not be affected because they did not raise money from a bank or
a financial institution.
The enterprise Value is: $143,589,386,032
This new evaluation will be assumed in the perfect capital market due to limited
information to calculate the Tax shield.
Stock Price
The stock price of Facebook when the acquisition was announced, the price
at March 25 was at $64.89 after that it dropped to $60.38. To consider this sink of
prices there has to be done some assumptions to see what could have caused this

drop of prices.

The first assumption is when shareholders know that this acquisition might
be risky due to the size of deal vs the size of the acquirer the stock price might be
affected. Nevertheless, in this case Facebook is a big company which has $4,384
million in cash, which represents 9.12% and 574,020,314 shares of class B, which
represents 4%. From this we can see it is not risky.

The second assumption as it is mentioned before, this acquisition is not

risky in terms on level of debt because Facebook did not use debt or ask for a loan
to do the acquisition.
Eliminating this two assumptions, which could have happened to the price
on the market is due to the uncertainty of the new Facebook acquisition. The
lowest price between the announcement and the closure was $56.14, and to
recover back again to the fixed price that was set for the purchase $69.35; it took 4
months, 21 July. Between this period was a lot of vague vision of where Oculus
and Facebook were actually aiming but at the end it succeeded obtaining higher
share values in the long run.

Facebook vs Twitter vs Linkedin

Moving on to comparing these three enterprises which are in the same

industry of social network, it needs to be analysed how the behaviour of Facebook
might or might not affect the others behaviour.

Looking at the graph comparing the three social network platforms by just look at
them, it can be seen there is a correlation among them affecting Twitter and
Linkedin when Facebook acquired Oculus. The other two recovers as well as
Facebook does.

References:
Acquire Media. (2014). Facebook to Acquire Oculus. Recovered from:
https://s21.q4cdn.com/399680738/files/doc_news/2014/FB_News_2014_3_25_Fi
nancial_Releases.pdf