Updated: Facebook buying WhatsApp for $US16 billion

Facebook, in a major push to expand its business on smaller screens, has agreed to buy the mobile messaging app WhatsApp for $US16 billion.

Facebook plans to pay $US12 billion in shares and $US4 billion in cash to acquire the company. It will also grant $US3 billion in stock options to WhatsApp's founders and employees. The deal is expected to close this year pending regulatory approval, Facebook said.

The size of the deal shows the value that Silicon Valley firms now place in mobile users, and what a high-stakes industry mobile computing has become. Facebook paid $US1 billion when it bought Instagram almost two years ago, and even then some said it had paid too much.

WhatsApp has 450 million monthly users, and 70 per cent of them access the service daily, Facebook said, making WhatsApp one of the leading mobile messaging services.

WhatsApp will operate "independently" inside Facebook and retain its own brand, Facebook said, a similar model it has used for its Instagram acquisition.

"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable," Facebook CEO Mark Zuckerberg said in a statement.

It's a dramatic move by Facebook to solidify its position in mobile. After a slow start the social network now generates more than half of its ad revenue on mobile, but it wants to strengthen that position further, in part by offering more standalone apps.

Facebook already has its own Messenger app, which it said will continue to operate alongside WhatsApp. It also has Instagram and it recently launched Paper, a new app focused on visuals.

WhatsApp allows people to send messages and photos over the Internet, meaning they don't have to pay SMS charges. Like Skype and other Internet-based communications tools, it's seen as a significant threat to traditional cellular carriers like Verizon and AT&T.

If the merger plan falls apart because the companies can't get the required regulatory approvals, Facebook has to pay WhatsApp $US1 billion in cash and also issue it $US1 billion in stock. Both companies have the right to terminate the deal if it's not closed by August 16, suggesting they expect to complete the acquisition before then.

When it closes, Jan Koum, WhatsApp's co-founder and CEO, will get a seat on Facebook's board of directors.

James Niccolai covers data centers and general technology news for IDG News Service. Follow James on Twitter at @jniccolai. James's e-mail address is james_niccolai@idg.com