Facebook bet pays off for Russia's Usmanov

Thu May 17, 2012 4:19pm EDT

* Russia's richest man bet on Facebook in 2009

* Usmanov could see Facebook IPO payday of about $1 bln

* Recently won control over Russia's No. 2 mobile firm

* Built up empire from mining, metals investments

By Megan Davies

MOSCOW, May 17 (Reuters) - Russia's richest man recognized the value of Facebook Inc three years ago when he invested in the social networking company and now stands to enjoy a payday of around $1 billion, propelling him further ahead of Russia's oligarchs, who have largely stuck with oil and steel.

Alisher Usmanov, who topped Forbes magazine's annual list of Russia's richest investors in April, began his career making plastic bags and built his fortune in metals and mining. He is now worth $18.1 billion, up from $2.6 billion six years ago, according to Forbes.

It is Usmanov's technology-related bets that have set him apart from his country's rivals, and 2012 looks set to be a particularly lucrative year. Along with the Facebook stake that values the firm at 10 times what it was worth when he invested three years ago, Usmanov plans to float MegaFon, the $20 billion Russian telecoms firm he took control of last month.

"He has his fingers everywhere," said one Moscow-based financial source who said he knows Usmanov.

"With MegaFon and Facebook, it looks as though he'll be having a massive liquidity event. It's quite incredible. It could be that he creates a huge holding company ... or he could make a run at a big international company," the source said.

Usmanov, 58, born in the Soviet republic of Uzbekistan, also controls iron ore miner Metalloinvest, Russian daily Kommersant, television assets and has a stake in London soccer club Arsenal.

AGGRESSIVE

Unlike Russia's tycoons who won control of empires through loans-for-share privatisation schemes of the 1990s, Usmanov built up Metalloinvest through a series of acquisitions following a stint at the investment arm of gas monopoly Gazprom .

"He's a visionary person and saw some opportunities in the market - that's how he made his fortune," said a Moscow-based analyst who requested anonymity.

"Of course he has luck, but he was in the very beginning in the Internet, and he was aggressive."

Usmanov is said to be close to the Kremlin, seen as crucial in Russia where business and politics are closely intertwined.

"He's quite well politically connected, probably one of the closest, that means a lot," said another Moscow-based analyst who also declined to be named.

"It doesn't matter if you're visionary or not, if you're connected to top-level officials. That means if anything bad happens he'll be helped."

INTERNET BET

Usmanov owns his Facebook stake through investments made by funds of Digital Sky Technologies (DST)- the investment firm of Russian social media investment star Yuri Milner - and through Internet investor Mail.ru which was spun out of DST.

DST and Usmanov's representative declined comment.

Together, DST and Mail.ru own Facebook shares valued at around $7 billion at the high point of the $34-$38 range for Facebook's IPO on Friday, according to data in its prospectus.

Usmanov's total stake in Facebook is now worth around $3 billion, a source familiar with the situation said. DSK and Mail.ru will sell 35 percent of their holdings in the offering, according to data provided in the prospectus. If that happens, Usmanov stands to make about $1 billion on the IPO.

"He's brilliant in many ways," said one person who knows Usmanov but who also requested anonymity. "He was probably one of the very few people in the world who at that time could have committed that capital to Internet investments."

The first investment was made by Mail.ru which bought into Facebook in 2009, investing $200 million for a small stake that valued Facebook at $10 billion. Facebook's IPO will value it around ten times that price - $104 billion if it prices at the top of the range.

"If you have the possibility to invest in a company with big upside potential before its public placement, it's great for making money," Usmanov told Forbes in 2010.

Subsequent investments were made by DST's funds and included $100 million later in 2009 which valued Facebook at $6.5 billion, while another in 2011 was made in tandem with Goldman Sachs in a $500 million placement.

"(Usmanov) trusted people like Yuri Milner, (MegaFon CEO) Ivan Tavrin and a few other less well-known people ... young people who get this space," said a third Moscow-based analyst. "One thing which is key to this space is good people."

Analysts expect DST and Mail.ru to unload their shares quickly.

"I think they'll both aim to sell as much as possible and as much as practicable over a relatively quick period," said the third analyst.

"Everyone wants to sell more rather than less. This has turned out to be a wonderful financial investment beyond what they could ever have hoped for, but to some extent they've got lucky and this isn't core to what they do."

Usmanov said in a recent interview with the New York Times that he plans to use money raised from the Facebook IPO to invest in his other Russian business and pay down debt.

"The idea is they'd look to take a lot of the profits off the table, and in terms of where they want to invest in the future, it's probably things close to home, where they have a greater understanding," said the analyst.

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