As Getty Images goes under the hammer, Facebook’s Instagram acquisition looks increasingly dubious

Private equity firms have just submitted final bids to acquire privately-owned stock photo agency Getty Images, the largest supplier of stock photos, video and other digital content in the world, in a deal expected to be worth $3.5 billion to $4 billion. The company was co-founded by Mark Getty and Chief Executive Officer Jonathan Klein in 1995 and then floated on Nasdaq in 1996 before moving to the NYSE in January 2001 and then being taken private.

Private equity groups Carlyle Group LP, TPG Capital LP and CVC Capital Partners Ltd are in the running to buy the assets after KKR and Charterhouse Capital Partners dropped out earlier in the process.

Hellman & Friedman owns a majority stake in Getty Images, which was taken private in July 2008 in a leveraged buyout valuing the company at $2.4 billion. The owners originally planned to IPO the company but this strategy was put on hold after private equity interest waned. If the latest deal fetches $4 billion then it will be a sweet deal indeed for Hellman and Friedman!

Contrast this deal to buy so much content with the Facebook agreement to buy Instagram in April just before the May IPO for a whopping $1 billion. The question being for what exactly, with 13 employees?! Instagram is a free photo-sharing program and social network that was launched in October 2010. The service allows users to take a photo, apply a digital filter to it, and then share it with other Instagram users they are connected to on the social network as well as on a variety of social networking services.

Regulators such as the OFT (Office of Fair Tradfing) and the FTC (Federal Trade Commission) are increasingly  becoming concerned that Facebook may restrict Instagram users from uploading from rival social networks. Later this week the OFT will decide whether Facebook’s deal could lead to a “substantial lessening of competition” in the UK. It will also decide whether the OFT has the right to oversee the US business, based on Instagram’s UK and it it could call on Facebook to make concessions or refer the matter to the Competition Commission.

Mind you for shareholders in Facebook, a collapse in the Instagram deal could do them a huge favour and put to bed Zuckerberg’s folly!

Contrarian Investor UK