Morning Agenda: Facebook’s $2 Billion Deal for Oculus

In a surprise move, Facebook announced on Tuesday that it had reached a $2 billion agreement to buy Oculus VR, the maker of a virtual reality headset, in a bet that technology commonly associated with science fiction can help eventually turn social networking into an immersive 3-D experience, Nick Wingfield and Vindu Goel write in The New York Times. The announcement comes just over a month after Facebook made waves by revealing it would buy the mobile messaging app WhatsApp for up to $19 billion.

The deal was particularly unexpected because Oculus, a small start-up that began as a Kickstarter project, is working on what some view as a niche technology aimed at serious video game players. For his part, Mark Zuckerberg, the founder and chief executive of Facebook, said the deal reflected his belief that virtual reality could be one of the “platforms of tomorrow.” Facebook is paying $400 million in cash and about $1.6 billion in stock for Oculus, with up to $300 million more depending on Oculus’s performance.

Facebook is the latest Silicon Valley company to invest in wearable hardware that reimagines how people will one day interact with information and other forms of content. But the deal had some analysts questioning Facebook’s strategy. One said the fit was “poor,” while another viewed virtual reality as having the same story as it did two decades ago, one of “hip, hype and hope.”

Elite venture capitalists stand to reap huge rewards from the deal, but many who supported Oculus in its early days will walk away empty-handed, William Alden writes in DealBook. Those would be its backers on Kickstarter, the fund-raising platform that Oculus used to raise $2.4 million in September 2012. And at least one of those supporter was not happy with the deal, writing on his blog, “I did not chip in ten grand to seed a first investment round to build value for a Facebook acquisition.”

WHAT OTHERS ARE SAYING  |  From The Verge: “The acquisition of Oculus seemingly comes out of nowhere: the company just demoed its most recent version of the Oculus Rift development kit at GDC 2014 to much fanfare. Oculus has been steadily moving towards a consumer product, and Facebook’s resources can only help to push that mission along.”

Variety writes: “Keep in mind Oculus Rift is really just a screen, albeit one strapped to a headset that fits around your eyeballs. While Facebook’s entry into the hardware business may make it no different than Apple with its iPad, there’s also a comparison to be made with exhibitors like AMC or Regal.”

Felix Salmon at Reuters writes: “Is it too early to declare that Zuckerberg has ambitions to become the Warren Buffett of technology? Look at his big purchases — Instagram, WhatsApp, Oculus. None of them are likely to be integrated into the core Facebook product any time soon; none of them really make it better in any visible way.”

News of the deal may have leaked about a month ago. From a Reddit post: “So no way to confirm this, but my friend works in the same building as Oculus, and he ran into Mark Zuckerberg taking the elevator to Oculus’s floor.”

A LIKELY HEIR IS LEAVING JPMORGAN  |  Once considered a possible heir to Jamie Dimon, the chief executive of JPMorgan Chase, Michael J. Cavanagh announced on Tuesday that he would resign as JPMorgan’s co-leader of investment banking to take on the role of co-chief operating officer of the Carlyle Group, Jessica Silver-Greenberg and Michael Corkery write in DealBook. The decision underscores how running a large bank has become less attractive amid the heightened scrutiny and regulatory hurdles that have beleaguered Wall Street since the financial crisis.

“While it is not uncommon for bank executives to leave for other jobs — at least 10 senior executives have left JPMorgan in the last two years — Mr. Cavanagh’s departure was surprising, in part, because of his prominence at JPMorgan and his reputation within the bank as what one executive referred to as a ‘lifer,’” Ms. Silver-Greenberg and Mr. Corkery write. “His move also shows that the siren call of private equity and hedge funds, financial industries that promise eye-popping compensation with far lighter regulatory burdens, is growing louder.”

News of Mr. Cavanagh’s decision set off speculation about who would ultimately succeed Mr. Dimon, as industry analysts increasingly worry that the lure of private equity firms and other players could siphon some of the most capable executives away from overseeing banks.

CANDY CRUSH MAKER SET TO TRADE  |  When King Digital Entertainment, the maker of the wildly popular game Candy Crush Saga begins trading on the New York Stock Exchange on Wednesday, investors will have to decide whether they are convinced that King is more than a one-trick pony, Michael J. de la Merced and Mark Scott write in DealBook. King priced its offering at $22.50 a share on Tuesday, the midpoint of its projected range. At that price, the company will raise $500 million, valuing it at more than $7 billion in one of the biggest initial public offerings so far this year.

King’s offering success will depend largely on whether investors believe the company can come up with new hits — and continued revenue and profit — to back up such a large valuation. While Candy Crush has generated hefty earnings for King, its gross bookings — a nonstandard measure of how much users pay for virtual items and other goodies — fell in the fourth quarter last year. Most of all, King is hoping to avoid the fate of Zynga, the company behind the FarmVille and Words With Friends franchises, which made a splashy market debut in 2011, only to see its shares plummet as it struggled to stay relevant.

ON THE AGENDA  |  The Mortgage Bankers’ Association purchase applications index is out at 7 a.m. Durable goods order for February are out at 8:30 a.m. Riccardo Zacconi, a founder and chief executive of King Digital Entertainment, is on Bloomberg TV at 10:30 a.m. Andy Dunn, a co-founder of Bonobos, is on Bloomberg TV at 4 p.m. Laurence D. Fink, the chief executive of BlackRock, is on Fox Business Network at 9 a.m. Charles I. Plosser, president of the Philadelphia Fed, is on Fox Business Network at 10 a.m. Carl C. Icahn is on CNBC at 12:30 p.m. King Digital Entertainment arrives on the public markets.

MURDOCHS TAKE STEP IN SUCCESSION PLANNING  |  Rupert Murdoch has taken a big step in making succession plans for his media empire, appointing his sons Lachlan and James to top roles. Lachlan will become nonexecutive chairman of News Corporation and 21st Century Fox, while James will become co-chief operating officer of 21st Century Fox.