Ilya Khrennikov & Alex
Alisher Usmanov didn’t receive a cent from the
$1.7 billion London share sale of his mobile operator OAO MegaFon
(MFON), nor did he pocket a dime from the $1 billion initial public
offering of his Internet company Mail.ru Group Ltd. (MAIL) two
The commodity billionaire has a different reason
for IPOs. He’s used the deals to let partners cash out and increase
his control over technology companies, and emerged as Russia’s
wealthiest person this year.
The MegaFon IPO marks the latest success for the
59-year- old Uzbekistan-born businessman, who built a fortune in
iron ore and steel assets while helping Russian President Vladimir
Putin’s team in the early 2000s recover natural-gas assets spun off
earlier by OAO Gazprom’s management.
Usmanov’s timing has paid off. He bought into
MegaFon in 2007 as Dmitry Medvedev prepared to take over as
president from Putin, with innovation as the keystone of his
“Usmanov positioned himself as a businessman
creating an innovative technology holding company that fits with
Medvedev’s agenda,” Stanislav Belkovsky, a Moscow-based political
analyst, said by telephone.
Shifting from commodities to technology, Usmanov
is riding a wave of mobile Internet usage. Mail.ru runs Russia’s
biggest e-mail service, social networks and online games.
Medvedev was the first Russian leader to set up
a Twitter account and met Apple Inc. founder Steve Jobs in person
in the U.S. He oversaw the creation of the Skolkovo high-tech
center, a Kremlin-backed version of Silicon Valley.
Usmanov’s telecommunications, Internet and media
assets now account for more than half of his $17 billion fortune,
while the rest comes from his iron ore producer Metalloinvest, 4
percent of Russian miner OAO GMK Norilsk Nickel, 30 percent of the
Arsenal Football Club and cash, including proceeds from the sale of
shares in Facebook Inc. (FB), according to Bloomberg Billionaires
His next IPO may be also in technology.
Usmanov’s UTH Russia television company, which brought Walt Disney
Co. (DIS) into a country-wide channel last year, has been
considering a share sale since 2011. UTH’s press offices declined
Elena Martynova, spokeswoman for the
billionaire’s USM Holding, declined to comment on Usmanov’s
At MegaFon, Usmanov took on the role
of a “white knight,” buying out “murky” shareholders battling with
billionaire Mikhail Fridman’s Altimo in 2007 and 2008, said Evgeny
Golosnoy, an analyst at Moscow-based IFC
MegaFon was formed in 2002 through the merger of
Russian mobile assets held by Sweden’s Telia, Finland’s Sonera and
funds controlled by Danish lawyer Jeffrey Galmond. A Zurich-based
arbitration tribunal concluded in May 2006 that then Communications
Minister Leonid Reiman was the beneficial owner of Galmond’s IPOC
fund, which was at the heart of a four-year battle with Altimo over
a 25 percent stake in MegaFon. Reiman repeatedly denied the
connection to IPOC.
“There was a shareholders’ deadlock in MegaFon
with three major owners,” said Evgeny Dumalkin, a vice president at
Moscow-based Altimo. “Usmanov showed himself to be a wise
negotiator, agreeing on a compromise that fit both us and
In April, Fridman exited MegaFon, Usmanov gained
control and TeliaSonera AB (TLSN) agreed to reduce its stake via
“Usmanov has built a reputation for resolving
difficult situations and peace-making in corporate conflicts,” said
Alexander Vengranovich, an analyst at Otkritie Capital.
Usmanov has been dogged by a six-year prison
term he served in Uzbekistan on a 1980 conviction for fraud and
embezzlement. In 1989, a Soviet court expunged his record and in
2000 Uzbekistan’s Supreme Court ruled there were no constituent
elements of crime, according to MegaFon’s IPO prospectus.
The MegaFon deal helped restore peace at the
main mobile service provider to government entities and state
companies, with close ties to the so-called St. Petersburg group,
according to Anna Kurbatova, an analyst at BCS Financial Group,
referring to officials and businessmen who followed Putin from his
hometown to Moscow.
The IPO came under threat this year when Goldman
Sachs Group Inc. withdrew as an adviser, without publicly giving a
reason. Prior to the sale, MegaFon appointed Paul Myners, a former
U.K. Treasury minister, as an independent director, to reassure
investors about corporate governance.
MegaFon recovered to hold the biggest IPO from
Russia since United Co. Rusal’s $2.2 billion share sale in January
2010. The deal may worth as much as $1.86 billion if the
overallotment option is used in full, according to Bloomberg
Usmanov’s move into technology appears to serve
the goals of Medvedev’s government, and state banks have willingly
funded his projects, Belkovsky said. Usmanov’s 34 percent of
MegaFon is pledged as collateral to OAO Sberbank (SBER) through
2018, the mobile company said in the prospectus.
Since Usmanov bought into MegaFon four years
ago, the company has spent 240 billion rubles ($7.7 billion)
developing its network infrastructure and, according to researcher
AC&M Consulting, became a leader in mobile data transmission in
the country. This year, Usmanov also acquired Scartel, which is
developing a fourth-generation network in the country.
MegaFon and Usmanov are now finalizing the $1.3
billion acquisition of a 50 percent stake in Russia’s largest
handset retailer Euroset, the other half of which is owned by
Fridman’s mobile operator VimpelCom Ltd. (VIP)
OAO Mobile TeleSystems (MBT), the largest mobile
company in Russia and controlled billionaire Vladimir Evtushenkov’s
AFK Sistema, has expressed concern that a Euroset deal could hurt
competition in retail sales.
At Mail.ru, the exit of two of its co-founders
in and after the November 2010 IPO allowed Usmanov to gain a voting
majority. The company’s charter bans foreign shareholders from
owning more than 45 percent. With a market value of $6.5 billion,
Mail.ru has been paying generous dividends to shareholders as it
sells minority stakes in Facebook, Groupon Inc. (GRPN) and Zynga
Usmanov, who held Facebook shares via Mail.ru
and his Digital Sky Technologies fund, has sold $1.4 billion of
shares in the social networking site since its May IPO, according
to Bloomberg Billionaires Index. In an interview broadcast on
Russian television in April, Usmanov said DST persuaded Facebook
founder Mark Zuckerberg to sell it shares in 2009 by waiving voting
MegaFon shares rose 1.8 percent to $20.87 a
depositary receipt at 10:23 a.m. in London today, while Mail.ru
added 1.2 percent to $32.65.
“Usmanov successfully diversified
away from the raw materials sector,” said Metropol’s Golosnoy.
“It’s quite unusual for a Russian oligarch.”