Japanese Internet Giant Snaps Up Viber for $900 Million

Messaging app recently denied it was in talks with buyers; 'Viber understands how people want to engage,' Japan's Rakuten says.

Viber Media, an Israeli-run firm whose mobile app lets users make phone calls and send text messages for free, is being acquired by one of Japan’s largest Internet service companies, Rakuten, for $900 million.

A large chunk of the purchase price, however, is contingent on Viber meeting business targets, so the final price tag could be considerably lower.

Rakuten announced the deal on Friday, its latest acquisition in recent years. Viber boasts Voice over Internet Protocol technology, which makes international phone calls possible online.

“Viber understands how people actually want to engage and have built the only service that truly delivers on all fronts,” Rakuten chairman and chief executive Hiroshi Mikitani said in a statement. News of the acquisition comes just days after Viber CEO Talmon Marco denied that the company was in talks to be sold. But around six months ago, Viber approached investment bank Goldman Sachs to help it find a buyer.

Marco founded Viber in 2011 with partners from iMesh, one of Israel’s largest media and file-sharing companies. Although formally incorporated in Cyprus, Viber maintains an R&D center in Israel. Mikitani is expected to visit Israel in the next couple of weeks to meet with Viber’s staff.

On Friday, Economy Minister Naftali Bennett, himself a former high-tech executive, chalked up the Viber sale as an accomplishment for Israel’s tech sector.

“Even though the company is legally registered in Cyprus, revenues are created in Israel because an Israeli entrepreneur who sells an asset makes a profit and pays capital gains tax on it in Israel,” he wrote on Facebook. The comment ignited a debate on social networks over the degree the company was Israeli and the extent the Israeli treasury would benefit from the deal.

The tax authority is expected to reap significant tax revenues from the sale, even though Viber is headquartered in Cyprus. The authority will be doing some of the number crunching this week. The size of the tax take depends on the company’s shareholder structure and the fine print of the transaction.

On Friday, Marco sent an email to Viber employees assuring them that the company had no intention of pulling its operations out of Israel, adding that it would boost the resources available for development activities here. Meanwhile, Rakuten said it would not fiddle with Viber’s development centers here and in Belarus.

Viber has about 280 million registered users around the world and grew 120% last year, Rakuten said. Around 100 million people actively use the product each month. The company’s instant messaging app, which allows users to make mobile calls to both Viber users and nonsubscribers, makes it a rival to Skype.

Viber has not received any funding from venture capital firms for its VoIP technology, but it recently launched new services to diversify its income sources. Among them is Viber Out, which allows users to make international calls to non-Viber users at low rates.

The company’s financing methods have thus been unorthodox. Rather than raising funds from outside investors or venture capital funds, the founders have provided financing themselves. Their stake in iMesh let them finance Viber’s operations from iMesh’s profits.

According to a prospectus filed by Rakuten, members of the Shabtai family –  Gilad Shabtai and his son Ofer, who are also the controlling shareholders of iMesh – hold a 55.2% stake in Viber. The Shabtais made their fortune through trade in watches made by Swiss company Raymond Weil.

Marco, the chief executive, has an 11.4% stake in Viber, while American holding company IRS West holds 12.5%, according to Rakuten. Among the eight other owners, some are Viber employees.

Rakuten’s acquisition of Viber is the latest foray in its acquisition spree. In 2012, it snapped up Kobo, one of the world’s fastest-growing e-book services, and Wuaki.tv, a video-on-demand and streaming service. In September 2013, it bought digital content platform Viki, which now reaches 65% of its 30 million monthly users through mobile devices.

“Rakuten … is truly dominant in its home market of Japan and has been rapidly expanding globally,” Talmon said in a statement. “This combination presents an amazing opportunity for Viber to enhance our rapid user growth in both existing and new markets. Sharing similar aspirations with Rakuten, our vision is to be the world’s No.1 communications platform, and our combination with Rakuten is an important step in that direction.”

Moti Bassok contributed reporting.

Reuters