Peter Thiel, one of the Facebook VC's on
why the deal with Twitter failed:
In Facebook's first public confirmation of the talks, Thiel said the parties disagreed over price and structure when they seriously considered a deal last fall. "It became pretty clear it wasn't going to happen," Thiel says from the mid-Manhattan office of his hedge fund Clarium Capital. "The deal would have to be done with Facebook stock. And then you have to figure out how much the stock is worth."
And Facebook tried to over-egg its value:
Representatives of Twitter liked the sound of $500 million but balked when Facebook said its stock was worth $8 billion to $9 billion. Twitter's team knew that Facebook was letting employees sell stock on the secondary market at company valuations ranging from $2 billion to $4 billion. "We said it's not worth it," the person says. "Don't treat us like children."
At that point, Facebook offered Twitter around $100 million in cash, with the rest of the deal in stock. Facebook said it would come up with the $100 million by selling more of its stock to outside investors.
Quite right, what self respecting Web 2.0 startup wouldn't take it all in hard cash and run for Miami

(After all, thats what the rest of them have all done). Facebook did not have the cash on hand to afford Twitter, so wanted to use stock. However, this option was effectively nixed by Facebook's decision to show an Order-of-magnitude overvaluation - who in their right minds would take stock from such an entity?
Interesting points:
(i) that its the VC, not the management talking here - how come, we wonder?.
(ii) its another abject lesson in the perils of stock overvaluation.
Timing, as they say, is everything and going into the Crunch with overvalued stock was not a good place to be.