Facebook Finalizing Billion-dollar Purchase of Israeli Startup Waze

Facebook is working out the final terms for buying the Israeli startup Waze, following media reports of the deal a week ago.

• Israeli wireless-power Powermat startup buys Finnish rival
• Report: Google may outbid Facebook for Israeli startup Waze
• Report: Facebook’s Waze acquisition talks hit the brakes

Facebook apparently has agreed in principle that Waze will remain an independent company based in Israel after its buyout by the social networking giant, TheMarker has learned.

A week ago TheMarker reported that Facebook was negotiating to buy Waze at a company value of $1 billion.

Waze's product is a social navigation application for mobile devices, that also advises on traffic conditions.

Its research and development facilities will remain in Israel, and the company will continue to employ a given number of workers under the deal in the works.

Waze (a play on the word "ways") will also remain a registered company in Israel, and will continue paying Israeli taxes. The company's Palo Alto office will be merged into Facebook, however, along with all of Waze's business operations.

Its CEO, Noam Bardin, is expected to continue heading Waze from within Facebook.

The terms can be seen as a significant accomplishment for Waze, since when Facebook acquires companies, it tends to shut them down and move some of their workers to its Palo Alto offices. This is what happened with its previous two Israeli acquisitions – Face.com and Snaptu.

In addition, after the publications a week ago, Waze was contacted by three other giants with which it had previously discussed buyouts – Google, Apple and Microsoft. But Waze had already signed an exclusivity deal with Facebook, so it could not receive competing offers.

However, the pressure helped speed up the negotiations with Facebook.

Currently Waze is being valued at $1 billion. Some 40% to 60% of that will be paid in Facebook shares, and the rest will be in cash. The Israeli funds that invested in Waze prefer cash, while its foreign investors prefer Facebook shares.

Waze's exclusivity deal with Facebook expires within the next few days, which means the ultimate price may be even higher, should the Israeli company receive a better offer. However, Waze apparently prefers to be bought out by Facebook. As opposed to Google, Facebook has no Israeli operations, which would make Waze its first Israeli development center.

Facebook has one development center outside the United States at the moment. That center is located in London, and was opened in August. The company also has a temporary development center in Canada, for workers who have not received visas for the United States.

By becoming Facebook's Israeli development center, Waze would be able to preserve its identity, which would be less likely should it merge into an existing establishment such as Google's local office. In addition, Waze employees apparently are intimidated by Apple's corporate culture, which has a reputation for being relatively tough.

A full half of the $1 billion buyout cost is expected to wind up in Israeli hands – Waze's founders, and the Israeli-managed venture capital funds Magma and Vertex. But most of the investors in these VC funds are foreign, which means that Israelis will not be the end recipients. Chinese investor Li Ka Shing is slated to receive $116 million thanks to his $30 million investment in the company via Hutchinson Ventures, in partnership with the U.S. fund Kleiner Perkins. That investment was made less than two years ago.

While Microsoft may have lost the acquisition to Facebook, it won't be left empty-handed – the company is expected to receive $102 million thanks to a $25 million investment it made in Waze in December 2010.

Facebook does not have its own map applications; rather it purchases these services from Microsoft. Thus, buying Waze will give Facebook a quick entry into the field and put it on par with some of the biggest players, particularly Google. Once Facebook has its own mapping software, it will not need to give Microsoft precious internal data in order to use its competitors' software.

In addition, the acquisition will enable Facebook to collect even more data about users, particularly their location. This has been a field where companies are most seeking to advance along with the growing popularity of cellular internet.