Mail.ru Pays $1.47 Billion for Rest of VKontakteIlya Khrennikov
Billionaire Alisher Usmanov took full control of VKontakte, with his Mail.ru Group Ltd. buying a remaining 48 percent in Russia’s most-popular social network for $1.47 billion.
The all-cash purchase valuing VKontakte at about $3 billion was completed today, Moscow-based Mail.ru said in a statement. The acquisition ends a yearlong fight for control with shareholder United Capital Partners that led to the dismissal of VKontakte Chief Executive Officer Pavel Durov this year. The two sides have now dropped all claims and litigation, Mail.ru said. Its shares jumped as much as 6.7 percent in London.
Usmanov’s Mail.ru is taking full ownership of VKontakte in a bet the site can fend off global leader Facebook Inc., whose expansion in new regions and on mobile devices has helped push its market value to almost $200 billion. The billionaire is also betting social networks can thrive as businesses in Russia even as President Vladimir Putin’s government imposes greater control over information flows through the Internet.
“The price isn’t low, but it gives Mail.ru domination in Russian social network space and additional opportunities for monetization,” said Konstantin Belov, an analyst at UralSib Capital. “This deal is a milestone for Mail.ru as it will finally be able to consolidate Russia’s largest social network on its balance sheet.”
Mail.ru shares rose 3.4 percent to $31.02 at 1:38 p.m. in London, valuing the company at about $6.5 billion. The stock had slumped 33 percent this year through yesterday.
Taking into account the purchase expense of the other 52 percent, Mail.ru’s total acquisition cost for VKontakte was $2.07 billion. Mail.ru funded the latest deal with its existing cash and a 22.2 billion-ruble ($585 million) four-year OAO Gazprombank loan carrying an interest rate of 11.5 percent.
“The consolidation of 100 percent of VK and the termination of all outstanding shareholder disputes will allow focus on the product and its further development,” Mail.ru CEO Dmitry Grishin said in today’s statement.
Andrey Rogozov, VKontakte’s head of development, may become its new CEO, Itar-Tass reported today, citing people it didn’t identify.
Mail.ru is part-owned by Africa’s largest media company Naspers Ltd. and China’s Internet giant Tencent Holdings Ltd.
VKontakte had 61 million users in Russia at the end of last year, according to researcher ComScore. Mail.ru’s Odnoklassniki. or Classmates, and My World social networks had 54.3 million and 27.6 million users in Russia, respectively. Facebook had about 13 million.
Entrepreneur Pavel Durov founded VKontakte, the Russian for “in contact” or “in touch,” in St. Petersburg in 2006 before Facebook started its overseas expansion. The network quickly gained popularity as, besides enabling users to meet friends, it enabled free uploading of music and video. Hollywood lobby MPAA called it “a hotbed for online piracy.”
Usmanov, 61, is Russia’s richest man and is worth $16.3 billion, according to data compiled by Bloomberg. He made his wealth in commodities and helped natural-gas monopoly OAO Gazprom to manage stakes in metal producers it received in exchange for gas debt. Eventually, Usmanov and partners gained control of those assets to create Metalloinvest Holding Co., Russia’s largest iron-ore producer.
He later invested in technology. Usmanov was an early investor in Facebook in 2009 and made a fortune selling shares in and after the company’s IPO. He also controls Russia’s second-biggest wireless operator, OAO MegaFon, and has a majority voting stake in Mail.ru.
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