MOSCOW (Reuters) - Russian social network VKontakte says it won't risk going ahead with its planned initial public offering fearing a repeat of the botched Facebook float which left U.S. regulators red-faced and investors around the world fuming.
Chief Executive Pavel Durov, who had secured the backing of 40 percent shareholder internet group Mail.Ru Group over how to take the company forward, said on Tuesday it would postpone the IPO indefinitely.
"The IPO of FB (Facebook) destroyed the faith of many private investors in social networks," Durov said on the social network site Twitter.
Facebook's $16 billion IPO earlier this month went from being one of the most highly anticipated floats of all time to the subject of a frenzied legal challenge from investors who feel they were short-changed.
Durov said in January the group was eyeing an IPO in 2012 or 2013, although capital markets have been frozen for much of the year amid market uncertainty fuelled by the euro zone crisis.
Durov's comments came as Mail.Ru said it would hand him the voting rights to its 39.9 percent stake, creating a partnership that will have effective majority control over the 100 million user network.
Mail.Ru said in a statement it would co-operate with Durov on "a range of issues facing Russian internet companies amid increasing global competition".
Mail.Ru, which also owns a stake in Facebook, and Durov own 52 percent of VKontakte between them, according to Renaissance Capital media and IT analyst David Ferguson.
"Mail.Ru has made no secret historically that it would like to take control of VKontakte. This has not happened, as the price expectations are a million miles apart," he said. "Now it has effectively decided to align its interest with one other shareholder."
Mail.Ru offered to increase its stake in VKontakte to over 50 percent last year in a deal that would have valued the company at $3.75 billion, according to business daily Vedomosti, but Durov and his co-founders did not want to give up control.
Spokespeople for Mail.Ru and VKontakte declined to comment on the nature of the alliance nor on Mail.Ru's ambitions to take over the company.
Mail.Ru itself raised around $1 billion in an initial public offering in London in November 2010 at $27.70 a share. The shares are now trading at $34 a share, having gained 27 percent this year partly due to anticipation of the Facebook float.
"Mail.Ru has a lot of cash - or it will when it completes the sale of its international businesses - and if it does not buy VKontakte it could pay dividends," Ferguson said.
Mail.Ru, co-owned by Russia's richest man Alisher Usmanov, was expected to sell a stake in Facebook worth $705 million in the IPO.
Additional reporting by Liza Dobkina; Editing by Maria Kiselyova and Mike Nesbit