Mail.ru Said to Seek VKontakte Control After Scrapped IPO

Mail.ru Group Ltd. (MAIL), billionaire Alisher Usmanov’s Web company, is seeking a controlling stake in VKontakte to cement its leadership in the Russian social- networking market and thwart expansion by Facebook Inc. (FB), said two people familiar with the matter.

Usmanov’s representatives have approached VKontakte shareholders including the Mirilashvili family which owns 40 percent, a stake the same size as Moscow-based Mail.ru holds in the social network, said the people, who declined to be identified as the discussions are private.

VKontakte was valued at $1.5 billion based on Mail.ru’s purchase of 7.44 percent of the company for $112 million last year. The St. Petersburg-based social networking site shelved a planned initial public offering in May after Facebook shares plunged following its IPO. Facebook Chief Executive Officer Mark Zuckerberg is visiting Russia this week to get local programmers develop more applications for Facebook instead of VKontakte.

“Mail.ru clearly needs more of an operating business,” said Konstantin Belov, an analyst at UralSib Capital in Moscow. “Now it’s pretty much perceived as a fund with a portfolio of stakes in different Internet projects, while investors could better off buying shares in these projects directly.”

Three Networks

Mail.ru, which makes its money on advertising and virtual gifts and services for online gamers and users of social networks, owned 1.34 percent in Facebook, 4.11 percent in Groupon Inc. (GRPN) and 1.15 percent in Zynga Inc. (ZNGA) as of July 30, according to its first-half report. These stakes are now worth about $800 million, while Mail.ru’s market value is $7 billion.

Matthew Hammond, Mail.ru’s managing director, declined to comment on “market speculations.”

It makes “perfect sense” for Mail.ru to increase its holding in VKontakte, said Anastasia Obukhova, an analyst at VTB Capital in Moscow. “If it succeeds doing so, it will control three Russian major social networks and have no major competitors in the country other than Facebook.”

VKontakte had an average of 22 million daily users in Russia in August, according to TNS Global. That compares with 15.9 million users for Odnoklassniki, a social network controlled by Mail.ru, and 3.5 million for Facebook. Mail.ru also owns a smaller network Moi Mir.

Facebook, based in Menlo Park, California, is hosting an event for software developers in Russia starting today.

Medvedev Meeting

“I just encourage and help them to build things on top of the Facebook and build some great companies here,” Zuckerberg said during a meeting with Prime Minister Dmitry Medvedev in Moscow today. “If they can do that than this will be great for Russian Facebook users as well as people who want to use all these other products which people are building.”

Shares of Mail.ru climbed 1 cent to $33.40 at 12:43 p.m. in London. The stock has gained 28 percent this year.

Mail.ru potentially boosting stake in VKontakte is an “absurd rumor,” VKontakte CEO Pavel Durov, who owns 12 percent of the social network, said in remarks via his press office. The only reason for such rumors could be some Mail.ru shareholders trying “to inflate value of their shares before selling,” he said.

In April, Usmanov said that Mail.Ru was considering giving voting rights in VKontakte to Durov to ease potential tensions.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Anatoly Temkin in St. Petersburg at atemkin@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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