Why Twitter Didn’t Sell to Facebook — Really

The New York Times’ Claire Miller attended a Churchill Club function to fete Twitter co-founder Evan Williams last night. In an onstage interview, Williams talked about many different aspects of his micro-blogging service, which now has 6 million subscribers. First of all, wow — that is an impressive jump in the number of subscribers.

More importantly, Williams talked about why he chose not to sell to Facebook when the Palo Alto-based startup offered to buy it for $500 million in stock. The news of the discussions was first reported by Kara Swisher over on AllThingsD. “It definitely made sense — the strategy we talked about with them — but it wasn’t the right time.” Or the right price. Here’s why:

Facebook offered $500 million of its stock, or roughly 3 percent of the company based on an inflated $15 billion in valuation. In October 2007, when Microsoft invested $240 million in Facebook, it valued the social network at $15 billion. Since then various different reports have emerged which point to a more somber valuation of $5 billion. Three percent of $5 billion actually works out to about $150 million. Given that Twitter was valued between $80 million and $120 million in its last round, the monetary incentive just wasn’t there to sell to Facebook.

More importantly, Twitter’s rejection of Facebook shows that the fast-growing social network has a new headache: Using its stock as currency to acquire companies that can play a meaningful role in its future isn’t going to work.