The hefty transaction - that includes USD 12 billion worth of Facebook shares, USD 4 billion in cash and USD 3 billion in restricted stock units - will boost the world's biggest social network by adding the 450 million users of WhatsApp, including a significant number of youth.
"The acquisition supports Facebook and WhatsApp's shared mission to bring more connectivity and utility to the world by delivering core Internet services efficiently and affordably," Facebook said in a statement.
The Mark Zuckerberg-led firm, that raised USD 16 billion in the richest tech sector public stock offering in 2012, said its biggest acquisition so far will not impact WhatsApp's brand, which will be maintained and the company's headquarters will remain in California's Mountain View.
"WhatsApp is on a path to connect one billion people. The services that reach that milestone are all incredibly valuable," Zuckerberg said. "I've known (WhatsApp founder, CEO) Jan (Koum) for a long time and I'm excited to partner with him and his team to make the world more open and connected."
Koum will join Facebook Board of Directors under the agreement, that will grant WhatsApp's founders and employees restricted stock units to vest over four years following the closing of the deal.
Koum said in a blog post: "Today we are announcing a partnership with Facebook that will allow us to continue on that simple mission.
"Doing this will give WhatsApp the flexibility to grow and expand, while giving me, (co-founder) Brian (Acton), and the rest of our team more time to focus on building a communications service that's as fast, affordable and personal as possible."
WhatsApp's core messaging product and Facebook's existing messenger app will continue to operate as standalone applications.
WhatsApp, which will continue to operate independently, has built a leading and rapidly growing real-time mobile messaging service with over 450 million people using the service each month. Of this number, 70 per cent users are active on a given day.
The messaging volume of WhatsApp is approaching the entire global telecom SMS volume and the company is currently adding over one million new registered users per day.
Facebook's most recent acquisition attempt failed when Zuckerberg tried to acquire another messaging firm SnapChat last year for a reported USD three billion.
"Last Sunday evening, about 11 days ago, I proposed if we joined together that would help us really connect the rest of the world," Zuckerberg said about the deal with WhatsApp, a cross-platform mobile app that allows users to exchange messages without having to pay telecom charges.
Koum, who co-founded WhatsApp in 2009 with Acton both former Yahoo executives, said he would not have agreed to the partnership with Facebook if WhatsApp would have had to "compromise" on the core principles of the company.
"WhatsApp's extremely high user engagement and rapid growth are driven by the simple, powerful and instantaneous messaging capabilities we provide. We're excited and honored to partner with Mark and Facebook as we continue to bring our product to more people around the world.
"WhatsApp will remain autonomous and operate independently. You can continue to enjoy the service for a nominal fee. You can continue to use WhatsApp no matter where in the world you are, or what smartphone you're using. And you can still count on absolutely no ads interrupting your communication," said Koum.
Once the deal is closed, all outstanding shares of WhatsApp capital stock and options to purchase WhatsApp capital stock will be cancelled in exchange for USD four billion in cash and over 183,865,778 shares of Facebook Class A common stock worth 12 billion dollars.
In addition, Facebook will grant 45,966,444 restricted stock units to WhatsApp employees worth three billion dollars based.
In the event of termination of the merger agreement if regulatory approval is denied, Facebook would pay WhatsApp a fee of USD one billion in cash besides issuing it a number of shares of Facebook's Class A common stock equal to a similar amount based on the average closing price of the ten trading days preceding such termination date.
The social networking giant sent a shockwave through the technology world after announcing the surprise mega deal yesterday. In after- hours trading, shares of Facebook were down over 4 per cent.
The deal represents one of the biggest acquisitions in recent mobile tech history at almost double the USD 8.5 billion Microsoft paid for Skype back in 2011, and over five times the USD 2.9 billion Lenovo paid Google for Motorola just last month and 16 times larger than what the social network paid for Instagram.
It helps Facebook's Internet.org project that seeks to provide Internet access to the two-thirds of the world not yet connected. Since most of that growth is expected in the developing markets where WhatsApp is popular, WhatsApp appears to have been suddenly elevated to a key component of that strategy.
According to analysts, even if every single one of its active users becomes a paying customer, WhatsApp would generate just USD 450 million in total revenue.