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Thiel: Twitter Deal Collapsed On Stock Valuation

In an interview with BusinessWeek, Facebook investor Peter Thiel acknowledges for the first time publicly that the social networking giant tried to buy Twitter for $500 million last year. Ultimately, he says, the talks broke down as the parties disagreed over price and structure. "The deal would have to be done with Facebook stock," said Thiel. "And then you have to figure out how much the stock is worth."

Indeed, determining Facebook's true value is a matter of some debate, writes BusinessWeek's Spencer E. Ante. Microsoft may have bought a 1.6% stake at a $15 billion valuation in 2007, but since Facebook is private, there is no liquid market for its stock. Thanks in part to the collapse of the economy, the company's valuation has plummeted since Microsoft's investment, settling at around $3.7 billion early this year, according to court documents. But tech valuations continue to fall, along with stock markets.

Meanwhile, the reported $500 million offer for Twitter, first reported by Kara Swisher at D: All Things Digital, was mostly in stock, as Facebook has little to offer but the promise that its massive traffic will one day reap Google-like rewards. "It will either turn out to be a great strategy or a terrible strategy," Thiel says. People close to the negotiations at Twitter confirmed that valuation was the primary problem. The popular microblogging service wanted an open-market valuation, but Facebook used its own internal evaluation of $8 to $9 billion during the negotiations. "We said it's not worth it," says on unnamed source. "Don't treat us like children."

Read the whole story at BusinessWeek »

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