Twitter Too Good to Be Sold for $500 Million to Facebook

There’s an amazing story today reported by Kara Swisher about Twitter rejecting a $500 million acquisition offer from Facebook three weeks ago. Kara refers to some unnamed sources both in Twitter and in Facebook that claim that the talks actually existed – with no one knowing about them through all this time.

Facebook reportedly initiated the talks offering to buy Twitter some time in the middle of October. As part of the proposed deal Twitter was offered Facebook stock worth $500 million and the talks reportedly lasted for a few weeks and ended after Twitter did not agree to the price offered. The thing is that for Twitter it was not easy to agree to a price of $500 million in Facebook stock given all the talks of how overpriced Facebook actually is.

So it looks like Twitter team and investors have decided that $500 million (probably much less – depending on how much you believe in Facebook valuation of $15 billion based on the Microsoft investment last year) for 6 million registered users must not be enough.

Besides, there were some concerns over how Twitter will be integrated into Facebook and what it will mean for the startup. And while it is understandable that the micro-messaging tool could fit into Facebook’s social networking system and especially the status update functionality, it is also obvious that Twitter could lose a large part of its individuality and the hard-earned users’ loyalty.

In addition to that, the Twitter side of the negotiations also believed Twitter could still try and earn its own revenue that is supposed to be as huge and rapidly growing as its user base is. Unfortunately, for now we only have hints at what we should expect Twitter to do in terms of business model and generating revenue – and the company that earns zero dollars will obviously need some time making millions upon millions of dollars to justify a declined $500 million acquisition offer.

But the issue of lack of revenue for Twitter in addition to handling the SMS delivery fees was a concern for Facebook as well and probably the social network (rapidly getting to the position of the most popular social network in the US) could offer a higher price if they could be certain Twitter would generate revenue, not losses, when serving all the Facebook users.

But it looks like if Kara’s report is true, we may hear further news about merger talks between Twitter and Facebook at some point as Facebook is told to be unwilling to see Twitter go to another company (and there may be various potential buyers, including Google or even Yahoo maybe). Anyway it will be interesting to see if Twitter gets more offers now that we know there is at least certain interest to discussing a potential acquisition. But I’d sure not expect Twitter investors to sell it right away – after all, Twitter is a huge hit in terms of the number of users and the mainstream popularity it already enjoys, and selling this hit to the first company who is willing to bid may not be particularly reasonable. And it looks like we are not ready to value businesses by their profits – not yet at least.