What’s Wrong With Facebook’s Instagram Acquisition?

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Facebook (NASDAQ:FB) will have to hold off on celebrating its Instagram buy for a little longer after the Federal Trade Commission said it would investigate the proposed deal at length. Facebook has been served a “second request” from the antitrust regulator, meaning the company will have to make fairly large amounts of data and documents available for scrutiny, Reuters reported.

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Google (NASDAQ:GOOG) and Twitter are among companies that have been asked about the deal as regulators try to investigate both the high price offered by Facebook and the reason behind the acquisition, wondering whether the idea had been simply to absorb a potential rival or stop another competitor from buying it.

Mark Zuckerberg’s company announced last month that it had successfully made a deal with Instagram owners to acquire the popular photo-sharing for $1 billion in cash and stock. Just a few days before the deal, Instagram had closed a funding round that valued it at $500 million.

Facebook made its public trading debut on May 18 and has since been struggling to keep its shares from dropping as concerns over the social network’s long-term business prospects continue. The company’s shares closed below $29 on Tuesday, in what was a new low. Acquiring Instagram is one of the ways Facebook hopes to tailor its mobile strategy, eventually converting the increasingly popular mobile medium into a viable revenue source.

Earlier this month, Facebook said in a regulatory filing that the deal was now likely to close sometime later this year instead of the earlier predicted second quarter.

The FTC or the Justice Department automatically reviews any acquisition at least worth $68.2 million. However, experts believe the deal is likely to be approved in the end.

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