Twitter rejects $500m Facebook offer

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Read Gordon's Republic blog post -- Facebook says no to Twitter

Facebook expressed interest in acquiring micro blogging site Twitter for a number of weeks, holding private meetings with the popular microblogging start-up in October, but negotiations finally broke down at the beginning of November.

The main stumbling block was the disagreement over the price of Facebook's stock.

Facebook was offering 3.33% of its stock valuing Twitter at $500m (£330m). This based the stock valuation on the price Microsoft paid when it purchased a 1.6% stake in the social networking site for $240m (£160m) in October 2007.

That price, when Facebook was in full stride in a stabilised economic climate, valued the company at $15bn (£10bn).

Twitter investors and management saw that figure as inflated and valued the shares at a lower level, putting Facebook's value in the $5bn (£3bn) range.

This is in keeping with the way net stocks have plummeted in recent months, with Google dropping 61%.

That would have seen the deal give Twitter a value of $150m (£100m), which was seen as too low.

Biz Stone, co-founder of Twitter said that the company wanted to remain independent to expand on its messaging service and try their hands at building a functioning revenue model.

Twitter, with over 6m registered users compared to Facebook's 120m, has yet to develop a way to generate significant revenues, which is seen as one of its main stumbling blocks for growth.

However, the company is one of the fastest growing Web 2.0 platforms, with registration numbers growing 600% over the past 12 months.