Yandex IPO raises $1.3 billion, more than expected

NEW YORK/MOSCOW Mon May 23, 2011 8:24pm EDT

People walk near the headquarters of Yandex company in Moscow May 23, 2011. REUTERS/Sergei Karpukhin

People walk near the headquarters of Yandex company in Moscow May 23, 2011.

Credit: Reuters/Sergei Karpukhin

NEW YORK/MOSCOW (Reuters) - Russian Internet company Yandex NV raised 19 percent more than expected on Monday in the sector's biggest U.S. initial public offering since Google Inc went public in 2004.

Russia's most popular search engine raised $1.3 billion (807 million pounds) as investors scooped up the shares, lured by prospects for the country's growing Internet market and the euphoria of last week's blowout debut by LinkedIn Corp.

Yandex and its shareholders sold 52.2 million shares for $25 each, a source briefed on the deal told Reuters. They had originally planned to sell the shares at $20 to $22 each, but another source close to the issue told Reuters on Monday that Yandex would likely sell shares at $24 to $25 each.

Internet companies, especially those with reach into emerging markets, have been stealing the hearts of investors. Yandex, to many analysts, has rekindled memories of an explosive offering by its Chinese equivalent Baidu Inc.

"Every Internet company that's come on the market recently wants to be the next Baidu.com .... It really is the 'Google' of China," said Anthony Moro, managing director and head of emerging markets for BNY Mellon's depositary receipt division.

"Everything else tried to be the 'Facebook' of this or the 'Amazon' of that, but Yandex really is the 'Google' of Russia ... They're a huge and growing brand."

Baidu, China's biggest search engine, rocked U.S. markets with a 354 percent jump in its 2005 Nasdaq debut and has grown into one of the world's top brands.

Yandex, valued at $8 billion by its IPO, follows a blockbuster debut by LinkedIn, whose shares more than doubled on the first day of trading and brought back memories of frothy valuations before the dot-com bust a decade ago.

"I don't know if you'd get such a huge pop (with Yandex) as you did with LinkedIn," said Darren Fabric, managing director at IPO investment firm IPOX Schuster LLC. But "it should trade fairly well on its first day even with the market volatility."

U.S. stocks closed at their lowest levels in a month on Monday, in contrast with the resilience in the market at the time of LinkedIn's IPO.

LinkedIn is trading at 34 times 2010 sales, while Google shares are now worth just under six times 2010 sales. Yandex's IPO values the shares at 18 times 2010 sales.

Yandex controls 65 percent of the Russian market for Internet searches, almost three times more than global leader Google. Yandex fans also highlight the company's record of profitable growth, driven by online advertising: In 2010, earnings rose 90 percent to $135 million on sales that grew by 43 percent to $445 million.

Chief Executive Officer Arkady Volozh told Reuters in 2005 that Yandex could go public. The company plans to use the IPO proceeds to provide liquidity for shareholders, enhance its profile and increase its financial flexibility, according to Yandex's filing with U.S. securities regulators.

NO QUICK FLIP

Investors may be reassured by the fact that the duo who founded Yandex in 1997 -- CEO Volozh and Chief Technology Officer Ilya Segalovich -- will retain most of their holdings.

Volozh, who has a degree in applied mathematics, began working on search technology in 1989. A year later, he started his own search software developing firm, where he was joined by Segalovich, a geophysicist. In 1997 they launched the yandex.ru website, which in March was used by 38 million unique users.

Yandex's search algorithm, originally developed to conduct keyword searches of patents, Russian classical literature and the Bible, was a breakthrough as it accounted for the Russian language's complex grammar.

The duo coined the name "Yandex" -- with "Ya" standing for the Russian equivalent to English pronoun "I" -- as Segalovich was experimenting with derivatives of words that described the essence of the technology. The full name originally stood for "Yet Another iNDEX."

Today the word "Yandex" has become synonymous with Internet search in Russian-speaking countries, as people suggest "asking Yandex" for answers to their inquiries.

Private equity investors are also keeping stakes, including Baring Vostok Capital Partners, which bought into Yandex in 2000, when it had revenue of just $72,000 and lost $2 million.

The funds' original investment valued Yandex at $15 million, meaning Baring Vostok and its partners could make up to 93 times their original investment.

Investors buying into Yandex's IPO will receive Class A shares, which only have one-tenth of the voting power of the Class B shares that insiders in the deal will retain.

Also, a golden share held by Sberbank, the state-controlled Russian bank, represents a poison pill that could be used to prevent any single investor from acquiring a voting stake in Yandex of more than 25 percent.

Morgan Stanley, Deutsche Bank and Goldman Sachs led underwriters on the offering.

Yandex shares are expected to begin trading on the Nasdaq on Tuesday under the symbol "YNDX."

(Additional reporting by Clare Baldwin and Megan Davies in New York; Maria Kiselyova, Melissa Akin and John Bowker in Moscow; Editing by Alexander Smith, Steve Orlofsky and Bernard Orr)

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