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Russian Google raises IPO price in Internet dash

Russian Internet company Yandex Monday raised the price guidance for its Nasdaq initial public offering, responding to strong investor demand after LinkedIn Corp.'s blowout debut last week.

Yandex, which runs Russia's most-popular search engine, plans to sell shares at between $24 (U.S.) and $25 apiece, above an earlier range of $20 to $22, a source close to the issue told Reuters. The IPO is expected to price after U.S. market close on Monday.

At that price, Yandex's IPO would be the biggest by an Internet company since Google Inc. raised $1.7-billion in 2004 - and IPO analysts say could be quite comparable to Google or its Chinese peer Baidu Inc. , which rocked U.S. markets with a 354 per cent jump in its debut in 2005.

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"You look at the positive aspects of being a high quality and profitable company, which Yandex has," said Rick Summer, a technology analyst at Morningstar. "It's a dominant player in the market and clearly is the Google of Russia."

At the higher price range, Yandex's IPO could raise as much as $1.4-billion to value the company at up to $8-billion.

"There have been rumors the IPO was five to 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 shares more than doubled after the company's IPO last week, bringing back memories of frothy valuations that preceded the dot-com bust of a decade ago.

They are currently trading at 33 times 2010 sales, while Google shares are now worth just under six times 2010 sales. If Yandex IPO prices at $24.50, the midpoint of the higher range, its shares would be worth almost 18 times 2010 sales - a valuation Mr. Summer called "quite lofty."

He added, however, Baidu's performance and the overall investor appetite for high-quality Internet stocks bode well for Russia's search engine.

Baidu, China's biggest search engine, has grown into one of the world's top brands since its skyrocketing Nasdaq float in August 2005. Yandex is a way to buy into fast-growing Internet markets in Russia and neighbors.

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"Every Internet company that's come on the market recently wants to be the next ... 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."

Yandex controls 65 per cent of the Russian market for Internet searches, far outpacing global leader Google. Yandex fans also highlight the company's record of profitable growth, driven by online advertising. Earnings rose 90 per cent last year to $135-million on sales that grew by 43 per cent to $445-million.


Investors may be reassured by the fact that the duo who founded Yandex in 1997 - Chief Executive 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.

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The two invented 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 who buy into Yandex 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.

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 from acquiring a voting stake in Yandex of more than 25 per cent.

Morgan Stanley, Deutsche Bank and Goldman Sachs are leading underwriters for the offering.

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

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