Kremlin-backed VK fails to buy Russia’s most wanted internet company

The Bell

  • Late last week, The Bell was the first to report on a major transaction on the Russian internet market: Ivan Tavrin’s Kismet Capital Group reached an agreement with Naspers to purchase 100% of its shares in Avito. Within a few hours, Prosus, the Dutch subsidiary that operated Avito, confirmed the deal.
  • Avito has been up for grabs since Naspers officially put the company up for sale in the spring. Among the suitors were billionaire Vladimir Potanin, who aggressively hoovered up cut-price shares after the war started. But the frontrunner to buy Avito was VK, Russia’s biggest internet company. Since the end of last year, VK has been owned by Gazprom and Yuri Kovalchuk, a friend of Putin’s. Since the deal, VK has been led by Vladimir Kiriyenko, son of top Kremlin official Sergei Kiriyenko.
  • Avito is the market leader in Russian classified ads and one of the country’s most profitable internet companies. However, VK, which owns Russia’s biggest social network, VKontakte, wanted Avito as a source of traffic, market sources told The Bell. Vladimir Kiriyenko has been given an order to halt the decline in VK’s audience (last month, Avito had 92 million active users, almost the same as VK).
  • There were more than a dozen potential buyers for Avito, but almost all of them backed out over the summer. Two sources told The Bell that the Kremlin was active in the deal behind the scenes. “We were led to believe that there was no merit in bidding for Avito because it was already sold to the right candidate, that is to say VK,” one of them said. Shortly after the tender, Duma deputy Anton Gorelkin, who previously helped establish state control over internet company Yandex, proposed a ban on foreign companies owning online classified ads services. The market interpreted this as a direct warning that Avito’s sellers should favor VK.
  • Naspers, though, was categorically opposed to such a deal, six different sources told The Bell. “They took the position that they would not sell to VK even on pain of death,” said one of them. And it worked. “They are from a friendly country. We gave them a chance to choose a buyer,” a government source told The Bell, referring to a government list of “unfriendly countries.” South Africa is not on that list.
  • As a result, Naspers not only got its preferred buyer, but also a good price. Tavrin paid 151 billion rubles (just over $2 billion) for the company, which is twice what sources claim VK was going to offer. Even so, that’s far less than the pre-war valuation of the company, which in 2019 was estimated to be worth $3.85 billion and, in early 2022, was placed in the $6.5-8 billion bracket by analysts.
  • Tavrin made his fortune in the early 2000s by buying regional TV channels and flipping them to market leaders. And, in 2009, he joined forces with Usmanov in the TV business. Their biggest joint project was the purchase of STS, one of Russia’s leading channels. It was later sold to Kovalchuk’s National Media Group.
  • In the 2010s, Tavrin was head of one of Usmanov’s biggest operations, cell phone company MegaFon. At the same time, he helped the billionaire in delicate transactions. In 2014, it was Tavrin who bought 12% of VKontakte from founder Pavel Durov during a corporate battle over the social network. Within a couple of months, those shares were resold to Usmanov’s Mail.Ru Group.
  • Unsurprisingly, many suspect that Tavrin had purchased Avito in order to sell it on to VK. However, this seems not to be the case. Two sources told The Bell that the deal includes a two-year lock up period when Avito cannot be passed to a third party. The announcement from Prosus is light on detail, but states that the sale includes “transaction protection mechanisms for the seller.” Tavrin told The Bell that he didn’t buy Avito to sell it on. Instead, he wants to see it as a public company.

Why the world should care

The story of a stubborn Naspers ultimately getting its own way proves once again that, despite the war and the collapse of relations with the West, the Kremlin does not want to quarrel with foreign companies. Putin is clearly assuming that the cynicism of big Western corporations will come to his aid and foreign companies will eventually return to Russia.

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