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Facebook: First Instagram, Now Waze -- Maybe

|Includes: Facebook (FB)

Facebook (NASDAQ:FB) is currently in talks to buy mobile navigation app Waze. The deal, which is rumored to be worth around $1 billion would make Facebook's second of that size in as many years, coming roughly one year after the social media giant acquired Instagram for around $700 million. Facebook has bought other mobile companies, such as Parse, but none have come close to the size of the Instagram deal and, potentially, Waze.

"Waze, which has close to 50 million users, offers driving directions based on input from other members, such as tips on traffic jams or car accidents. It also functions as a social network, as users can leave messages for other drivers, exchange comments on posts and coordinate their drives with friends. The app is free and Waze generates revenue by selling advertising," writes the Wall Street Journal. "For Facebook, Waze represents an opportunity to expand its mobile expertise and acquire a valuable asset in the mapping space." Specifically, Waze would help Facebook entice its users to spend more time "in app", in turn allowing the company to sell more mobile ads.

Founded in 2008, Waze is one of few mobile companies that offer detailed mapping information. Already, the Israel-based company "has attracted tens of millions of dollars in venture capital, last raising $30 million from Kleiner Perkins Caufield & Byers and Horizon Ventures in 2011. It is in 193 countries and has about 110 employees spread between California, New York and Israel," says the Wall Street Journal. "Waze, which is especially popular in dense cities, would place Facebook at the center of people's cars and could be used to cull more real-time data based on users' behavior.

It would also provide a key channel for serving location-based ads from nearby businesses. For instance, restaurants or department stores nearby could serve ads for limited-time deals to Waze users who are passing by."

However, for as beneficial as Waze could be to Facebook, the word on the street is that deal could be falling apart.

"The chasm between Facebook and Waze over the future of the navigation company's development center in Israel is deepening and impeding a possible acquisition deal," according to Israeli news site Ynet. Facebook's offer is conditional on the relocation of some of Waze's employees to Facebook headquarters in San Francisco. "Waze founders Ehud Shabtai, Uri Levine and Amir Shinar, along with CEO Noam Bardin, are adamant about leaving the development center and its 100 employee in Israel. Meanwhile, Waze shareholders are entangled in a dispute of their own: Foreign funds BlueRun Ventures (19%) and Horizons (11.6%) are pressing for the conclusion of the deal, whereas Israeli Magma Fund (17.6%) and Microsoft (10.2%) are trying to arbitrate between the foreign funds and Waze management."

"To date Facebook has acquired 36 companies around the world, all of which it liquidated and has part of the staff relocated to its own headquarters," explains Ynet. "Waze currently has an $850 million price tag. However, in the event that Facebook relocates its employees, the price will increase to $1 billion."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.