Mail.ru Group, DST Earn Huge Profit from Facebook IPO

Mail.ru Group and the Digital Sky Technologies (DST) companies earned a tidy sum from the 18 May Facebook IPO. Their original investments between 2009 and 2011 totaled $900 million. During the IPO they earned $2.5 billion and still hold over 5% of Facebook.

Mail.ru Goup, which was created by Yuriy Milner and is now controlled by oligarch Alisher Usmanov, earned $740 million from the sale of part its Facebook shares and maintains 1.7% of the shares in the company and 2.4% of the voting shares.

The DST investment funds, which Yuriy Milner manages, were the second largest sellers of shares during the IPO, which earned them a total of $1.73 billion. They still hold 4% of the shares and 5.2% of the voting shares. Of the DST funds, DST USA II sold the greatest amount of Facebook stock, earning it $1.026 billion and DST USA earned $340 million.  DST Global, which invests Usmanov’s money, earned $230 million. DST Global II and DST Global III, which invest money from other investors including Milner and Usmanov, earned $76 million and $22 million from the sale of their Facebook stocks respectively.

In an interview for the New York Times before the Facebook IPO, Usmanov said he planned to use the proceeds from the IPO to invest and pay down debt at his other Russian businesses.

Mail.ru and DST Companies to Sell Part of Facebook Stock

Mail.ru Group and the DST companies, which currently own Facebook shares worth approximately $7 billion, plan to sell off up to 35% of their combined stock during the Facebook IPO. DST Global will sell 3 million shares, DST Global II –1 million shares, DST Global III–350,000 shares, DST USA –5 million shares, and DST USA II –15 million shares. Mail.ru Group will sell 11 million.

According to the New York Times, Alisher Usmanov, the main shareholder in Mail.ru Group, said that he and Yuriy Milner, the owner of DST, now own about 6 percent of Facebook and the sale will leave them with about 4.5 percent. Most reporting had put their stake at 10 percent, but Usmanov told the NYT that “the other shares they originally controlled have gone to other investors, clients of DST and corporate entities.”

Although DST and Mail.ru Group have no voting rights, no board seats, and no say in the site’s privacy policy or in political organization on the site, per the terms of their agreement with Facebook owner Mark Zuckerberg,  DST’s purchase of nearly 2% of Facebook in 2009 caused some worry that the Russian government would use the purchase to gain control over Facebook, get access to its user data, or force censorship. Usmanov is thought to have very close ties Russian Prime Minister Dmitriy Medvedev and President Vladimir Putin. At the time, Finam expert Leonid Delitsyn stated that “Alisher Usmanov is not an investor for whom state interests are an alien concept. When his structures acquire a media asset this is seen as a deal that has been done with the state’s approval.”

According to Radio Free Europe Radio Liberty, Facebook is increasingly becoming the platform of choice for politically active Russians seeking to organize events.


And the winner is….. Pavel Durov!

Mail.ru Group, may transfer the voting rights on its shares in Russia’s top social network, VKontakte, to VK founder Pavel Durov.

If it materializes, the move would give Pavel Durov a controlling vote in the company and two seats on the board of directors. Moreover, it would settle a year long fight between Mail.ru Group and Durov that broke out when Mail.ru’s general director Dmitriy Grishin stated publicly that Mail.ru planned to buy 100% of VK. In response, Durov tweeted a picture of himself giving Mail.ru the middle finger and called Mail.ru a “trash holding” full of “viruses and warez.”

It would not be the first time that Mail.ru Group has agreed to such terms. The deal with VKontakte would mirror the deal Yuriy Milner and Alisher Usmanov thought up when they bought in to Facebook, whereby they agreed to give FB owner Mark Zuckerberg all the voting rights associated with their stock in the company.

However, sources say that VKontakte and Mail.ru Group have yet to sign any legal documents approving the deal.

***Update***
It’s official. Mail.ru Group and VKontakte signed the agreement on 29 May. Durov now has his original 12% of voting shares plus the voting rights to VKontakte’s nearly 40%, making him the controlling stakeholder.  Of the remaining shares, 40% belong to Vyacheslav and Mikhail Mirilashvili and 8% belong to Lev Leviyev.

Yuriy Milner Leaves Mail.ru Group Board

Yuriy Milner, one of the founders of Mail.ru Group (the biggest Internet company in Russia and the fifth largest in the world in page views), announced on 14 March that he is stepping down as chairman of the board of the holding company.

Although neither Milner nor Mail.ru Group commented on the reasons for the move, the decision appears to have been agreeable for both sides.  Several sources have speculated that Milner left so that he could concentrate on his international investment fund DST Global, where he has been spending the majority of his time lately. For its part, Mail.ru Group is moving away from investment in other Internet companies, which was Milner’s area of expertise, to concentrate on operations and producing new products on its own.

Analysts appear to believe that Milner’s departure will not have a negative impact on Mail.ru Group. Dmitriy Grishin, Milner’s business partner of 10 years and the general director of Mail.ru Group, will replace him as chairman of the board and will also retain his position as general director. Grishin has been managing all day-to-day activity since 2003, working very closely with Milner.