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December 18, 2012

Instagram CEO Testimony Questioned, Sources Say Systrom Had Verbal Deal With Twitter

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Instagram CEO Kevin Systrom had a verbal agreement to sell his photo-sharing company to Twitter for $525 million earlier this year, but opted instead to accept a $1 billion bid from Facebook , sources told The New York Times.

Sources also said Twitter executives gave Systrom a written proposal explaining the ins and outs of the proposed deal, but Systrom, under oath while testifying at a hearing of the California Corporations Department, said his firm had not received any “formal offers or term sheets” from potential buyers except Facebook.

The unsubstantiated claims made by the New York Times’ unnamed sources have rumors of perjury and fraud swirling. According to the report, the New York Times has also reviewed documents that “contradict the statements (Systrom) made under oath.”

The hearing, requested by Facebook to speed up purchase approval, occurred in August. Facebook acquired Instagram the next month for a $715 million valuation, reflecting the social network’s stock drop since the initial offer.

Facebook CEO Mark Zuckerberg coughed up $521 million for Instagram — $300 million in cash, the remainder in vested shares of Class B common stock. Facebook also issued 11 million unvested shares to Instagram employee stockholders valued at $194 million “which will be recognized as they vest over a three-year service period as share-based compensation expense,” a report at the time revealed.

The New York Times’ sources, who the paper describes as being “familiar with the negotiations,” said Twitter executives were surprised they were not given the chance to make a counteroffer, adding Twitter was ready to submit a higher bid.

Facebook, Twitter and Systrom have all declined to comment.

The relationship between Instagram and Twitter, once allies in the battle against Facebook, has deteriorated since the photo-sharing site was acquired by the world’s largest social network.

Instagram recently disabled photo integration with Twitter in a bid to “take control of its own content,” Systrom said.

“We’ve decided that right now, what makes sense, is to direct our users to the Instagram website,” Systrom said. “We’re working on building an awesome web presence, which we just launched. We revamped our web properties, and now we’re able to staff up teams to work on web properties with the Facebook acquisition.”

Systrom also denied that Facebook played any role in the change, saying the decision was his. He also rejected the notion that Instagram was hitting back at Twitter for eliminating a feature enabling Instagram users to find friends through Twitter.

Twitter is slapping back at Instagram by launching its own set of photo filters.

The filters, which will be available before year’s end, will be made for use inside the official Twitter app. The new version of the app is currently in the testing phase.

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