Mail.ru Seeks Deal for Russian Social Network Operator VKontakte

Mail.ru Group Ltd., billionaire Alisher Usmanov’s Web company, said it’s holding out on price as it tries to buy Russian social network VKontakte.

“It makes enormous amounts of strategic sense for VKontakte to be part of Mail,” Mail.ru Managing Director Matthew Hammond said today said at a Morgan Stanley conference in Barcelona. “It’s a deal that needs to be done at the right price.”

Mail.ru already owns 40 percent of VKontakte, Russia’s biggest social network, and a controlling stake would help cement its leadership in the country’s social-networking market and help it thwart expansion by Facebook Inc. (FB) Hammond declined to comment on the status of discussions between the two companies beyond saying that as a shareholder, Moscow-based Mail.ru is in constant contact with VKontakte.

Mail.ru has raised funds by selling its holding in social games maker Zynga Inc. (ZNGA) and reducing a stake in online daily deal company Groupon Inc. (GRPN), giving it cash on its balance sheet of about $850 million to $900 million, Hammond said. The company’s 14.5 million-share stake in Facebook is locked up until next year, he said.

Still, investors holding 48 percent of VKontakte’s shares said last month that they have no plans to sell their shares to Mail.ru. Vyacheslav Mirilashvili and Lev Leviev said on Oct. 3 that they rejected an offer from Mail.ru about six months previously and hadn’t been in discussions since.

Leviev owns 6 percent of St. Petersburg-based VKontakte, while his former classmate Mirilashvili holds 42 percent, Leviev said. The duo provided funds to help programmer Pavel Durov start VKontakte in December 2006.

Mail.ru may also look at smaller deals, funded by its cash flow, for games companies, which are a good way of recruiting talent, as well as price comparison websites, Hammond said.

To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

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

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