Russian Internet company Yandex raised the price guidance for its Nasdaq initial public offering on Monday, responding to strong investor demand after LinkedIn Corp.'s blowout float last week.
Yandex, due to price its IPO later in New York, plans to sell shares at between $24 and $25 each, compared to an earlier $20 to $22 range, a source close to the issue told Reuters.
At that price, Yandex would be the biggest float by an internet firm since Google raised $1.67 billion in 2004, and could attract as much as $1.4 billion if lead managers exercise an over-allotment option.
Yandex is selling 15.4 million new shares and shareholders 36.8 million existing shares, equivalent to 16.2 percent of its enlarged equity of 321.2 million shares. Including new money, the offer range values the business at $7.7-$8.0 billion.
"There have been rumors the IPO was 5-10 times oversubscribed. And on the wave of last week's deals, including LinkedIn, we can expect a fully successful placement," said Konstantin Chernyshev, head of research at Uralsib in Moscow.
LinkedIn Corp.'s shares more than doubled after its IPO, valuing the business-networking site at 550 times 2010 earnings, Barron's estimates, bringing back memories of frothy valuations that preceded the dot-com bust of a decade ago.
U.S. software giant Microsoft has been widely criticized for overpaying in its $8.5 billion acquisition of internet phone service Skype.
By contrast, Yandex fans highlight the firm's record of profitable growth, driven by online advertising as Internet penetration in Russia and its neighboring markets deepens.
Yandex controls 65 percent of the Russian market for internet search. Its earnings rose 90 percent last year to $135 million on sales that grew by 43 percent to $445 million.
"It's the biggest Russian internet play and the online advertising market is growing at a fast pace," said Dmitri Kryukov, Chief Investment Officer at hedge fund Verno Capital.
"The company is not cheap on current multiples — it's all about future growth."
At the top end of the revised price range, Yandex would trade at 57 times trailing earnings.
NO QUICK FLIP
Investors may be reassured by the fact that the duo who founded Yandex in 1997 — CEO Arkady Volozh and Chief Technology Officer Ilya Segalovich — will retain most of their holdings.
The mathematicians developed an algorithm to conduct keyword searches of the Bible that took account of the Russian language's complex case endings, refining it into the search engine that was used by 38 million unique users in March.
Also keeping skin in the game are private-equity investors, led by Baring Vostok Capital Partners, who bought into Yandex in 2000, when it had revenues of just $72,000 and lost $2 million.
The funds' original investment valued Yandex at $15 million, meaning Baring Vostok and its partners would make an astonishing 93 times their original investment if the IPO prices at the top of the range.
Baring Vostok, founded by American Michael Calvey in 1994, has delivered a strong track record of long-term growth, making 40 times its original investment when it disposed of a stake in television broadcaster CTC Media in 2007.
Investors who receive allocations in Yandex will, however, receive Class A shares, which only have one-tenth of the voting power of the Class B shares that insiders in the deal will keep.
Class B shares will represent 93.7 percent of the voting power of outstanding shares while the listed Class A stock will only account for 6.3 percent after the offering, according to the issue prospectus.
Moreover, a golden share held by Sberbank, the state-controlled Russian bank, represents a poison pill that could be used to prevent any single investor acquiring a voting stake of over 25 percent in Yandex.
Morgan Stanley, Deutsche Bank and Goldman Sachs are the lead underwriters for the offering. Trading under the symbol will begin on May 24.
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