Facebook has received notice that U.S. antitrust regulators will give its proposed purchase of the popular photo-sharing app maker Instagram a lengthy investigation, an industry source told Reuters on Tuesday.
Facebook has received a "second request" from the Federal Trade Commission, essentially a request for relatively large amounts of data that the regulators will sift through to ensure that the deal complies with antitrust law.
A prolonged review adds another headache to the No. 1 social network, whose shares on Tuesday slid below $29 to a new low as nervous investors continued to show their concerns about Facebook's long-term business prospects and rich initial public offering price of $38.
Ahead of its rocky May 18 market debut, Facebook announced in April that it would purchase Instagram for $1 billion in cash and stock, its largest-ever acquisition.
The purchase of the photo-sharing service on the Internet is a crucial part of Facebook's strategy to bolster its mobile offerings at a time when consumers are increasingly accessing the Internet through smartphones.
Google and Twitter are among companies that have also been asked about the deal, a second source had previously told Reuters.
The FTC's questions about the deal to tech companies had indicated that it was in a very early stage in its investigation, according to a Reuters story on May 10. The agency was asking in Silicon Valley what concerns tech companies might have about the Facebook purchase of Instagram.
The "second request" letter from the FTC is dated May 16, Tuesday's source said.
Facebook declined to comment, as did the FTC.
The FTC or Justice Department automatically review any acquisition worth $68.2 million or larger.
Facebook earlier this month extended its estimate of how long the review of the deal would take, saying in a regulatory filing that the deal would likely close this year instead of the second quarter as it previously indicated.
Antitrust experts said that the FTC's interest could well have been piqued by the high price that Facebook offered for 2-year-old Instagram. Instagram closed a funding round days before the Facebook deal was announced that valued it at $500 million.
Experts have speculated that Facebook might be trying to absorb a potential rival or at least prevent it from falling into the hands of a major competitor like Twitter or Google.
"When the dominant firm is paying clearly an excessive price to take out a rival, it gets the closest scrutiny of all," said David Balto, a former FTC policy director now in private practice.
A second antitrust expert said the deal would likely be approved in the end.
"I think the hype over the antitrust review is greater than reality," said this expert, who asked to speak privately to protect business relationships. "Everything Facebook is electric right now with the agencies."