Facebook has acquired Instagram for nearly one billion dollars, the company announced this morning in a blog post. The deal is a combination of cash and stock.

With this sale, Kevin Systrom and Mike Krieger, cofounders of Instagram are the newest mega-millionaires in Silicon Valley. The duo could see their net worth jump even higher depending on the Facebook’s public offering. The deal is also a big win for Benchmark Capital and Matt Cohler who lead the investment in the company. Cohler, previously worked for Facebook. The company has raised money from well-known entrepreneurs including Digg founder Kevin Rose, former Facebook CTO Adam D’Angelo and Twitter’s Jack Dorsey.

From some, the deal is both worrisome in the sense that Facebook now owns yet another social network, but may also offer hints as to how the company plans to address worries about its mobile business ahead of its planned initial public offering. (My analysis is here.)

Here is the Facebook blog post.

The total consideration for San Francisco-based Instagram is approximately $1 billion in a combination of cash and shares of Facebook. The transaction, which is subject to customary closing conditions, is expected to close later this quarter.

Mark Zuckerberg, founder and CEO of Facebook, posted about the transaction on his Timeline:

I’m excited to share the news that we’ve agreed to acquire Instagram and that their talented team will be joining Facebook.

For years, we’ve focused on building the best experience for sharing photos with your friends and family. Now, we’ll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests.

We believe these are different experiences that complement each other. But in order to do this well, we need to be mindful about keeping and building on Instagram’s strengths and features rather than just trying to integrate everything into Facebook.

That’s why we’re committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.

We think the fact that Instagram is connected to other services beyond Facebook is an important part of the experience. We plan on keeping features like the ability to post to other social networks, the ability to not share your Instagrams on Facebook if you want, and the ability to have followers and follow people separately from your friends on Facebook.

These and many other features are important parts of the Instagram experience and we understand that. We will try to learn from Instagram’s experience to build similar features into our other products. At the same time, we will try to help Instagram continue to grow by using Facebook’s strong engineering team and infrastructure.

This is an important milestone for Facebook because it’s the first time we’ve ever acquired a product and company with so many users. We don’t plan on doing many more of these, if any at all. But providing the best photo sharing experience is one reason why so many people love Facebook and we knew it would be worth bringing these two companies together.

Here is Instagram CEO and co-founder Kevin Systrom on the deal

Every day that passes, we see more experiences being shared through Instagram in ways that we never thought possible. It’s because of our dedicated and talented team that we’ve gotten this far, and with the support and cross-pollination of ideas and talent at a place like Facebook, we hope to create an even more exciting future for Instagram and Facebook alike.

 It’s important to be clear that Instagram is not going away. We’ll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photos experience.

And here is Systrom and I chatting on stage at Mobilize 2011: